The Truth about the 3.8% Tax Associated with the Healthcare Reform Bill

There has been a great deal of discussion regarding the impact of the 3.8% tax increase associated with the Health Care Reform Act.  It is actively discussed as, and rumored to be, a transfer tax on all real estate transactions.  While there is a tax increase provision of this bill scheduled to take effect on January 1, 2013, it is not a Real Estate Transfer Tax!

The National Association of Realtors has provided both a comprehensive brochure complete with several comprehensive scenario analyses and a question and answer video which sheds more factual detail on the specific impact of this tax increase on real estate.

It is the position of the National Association of Realtors that 97% of home sales in the United States will not be impacted by this tax increase.  A few key points:

  • The purpose of the new 3.8% tax increase is to help sure up shortfalls in Medicare.
  • The tax will only apply to individuals who earn more than $200,000 a year and couples who earn more than $250,000 per year.
  • Eligible sales of primary residences will still be able take advantage of the $500,000 capital gains exclusion.  The tax would only apply to gains above that threshold.
  • Capital gains on investment properties or second homes may be subject to this tax should ones income exceed the limits above.
  • As with all tax issues, you should consult a financial professional to analyze your personal tax situation.

At Legacy Properties Sotheby’s International Realty, we recognize that our clients will likely be more impacted than the national average.  Approximately 50% of our sales relate to second home transactions.  Our client base often exceeds the income levels specified in the bill.  We also have a very strong presence in selling homes that have been owned for multiple generations with a very low cost basis resulting in a significant capital gain upon closing.  While we are not pleased with the impact of this tax on our clients, we are comforted by the many attributes which make Maine one of the greatest real estate values on the eastern seaboard.  The lifestyle gain enjoyed by our friends and neighbors in Maine will go a long way to offset the impact of this legislative change.

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