Two Myths Busted About the 3.8% Medicare Tax on the Sale of Your Home

There are several myths about the new 3.8% Medicare Tax. I bust two of the most common in this blog post.

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.

Comments? Questions? You can post them below or email me at cbosse@rockcliff.com.

Team VIP is part of J Rockcliff Realtors. We are the #1 Real Estate brokerage in Walnut Creek as well as surrounding areas.


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Jana Baker October 12, 2012 at 07:32 PM
Bottom line is its a new tax. Some people do have equity in their homes. I don't think you busted the myth but you did clarify who will pay the new tax.
Craig Bosse October 12, 2012 at 08:16 PM
Hi Jana, Thanks for your comment. It wasn't my intention to say that there is no new tax. Yes, there is a new 3.8% tax on investments that CAR and NAR (California and National Association of Realtors) fought hard against. No one likes new taxes, however there is quite a bit of misinformation out there that needs to be cleared up. The main myth is that the 3.8% tax will apply to the sales price which is completely false. There is also the homeowners exclusion of $250k (single) and $500k (married) of gains tax free. So, if over the years your homes value has risen less than $500k you can take that half a million dollars to the bank tax free. I'm curious Jana, are you an investor?
Jana Baker October 12, 2012 at 10:31 PM
Yes I am
Craig Bosse October 13, 2012 at 12:36 AM
I see. So it may affect you. Have you talked to a tax professional about it? We are seeing the best opportunity to flip homes in years currently. We have a few investors making nice profits.


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