You’ve seen it on Facebook. You’ve been sent 100 different chain emails about it. Some are certain that our modern society will collapse because of it. No I’m not talking about Twilight, I’m referring to the 3.8% Medicare tax on investments.
Let’s bust the first and most common myth I’ve heard
- If you sell your home (that you live in) you will be taxed 3.8% on the sale price. For example if your home sells for $750,000 you will owe $28,500 in tax. FALSE
The new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. The tax is only on the GAIN not the sale price. With downfall of the market between 2007-2012 most homeowners will not gain more than $250,000 (single) or $500,000 (married). If you do, you have been in your home for a LONG time.
Now on to the second most common myth
- This 3.8% tax is a Real Estate transfer tax due at the time of sale. FALSE
The tax is a Capital Gains tax. It applies to all capital gains, not just real estate. It’s also due at the end of the year when you add up your net gains, not at the time of the sale.
There are a bunch of rules that I won’t get into here because let’s face it, I’m not a tax guy. I’m a Real Estate guy. The main point is that this new tax will have no effect on most homeowners when selling their primary residence.
If you want to know more about the tax take a look at NAR’s “Top 10 Things you need to know about the 3.8% tax”
Disclaimer: I am not a Tax Professional. This should not be taken as Tax Advice. You should always consult your tax professional before making any Real Estate transfers.
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