Rumored 3.8 Percent Sales Tax on Homes

For home sales, the existing $500,000 / $250,000 gain exclusion for a seller of a principal residence continues to apply, so most principal residences sales will not be affected by the 3.8 percent sales tax on homes.

Among the most common tax and housing policy questions is whether a 3.8 percent sales tax will hit home sales in 2013. NAHB said the answer is no. That's good news for landscape professionals, as home owners can target more of their expendable income towards landscape improvements.

NAHB tracked a set of emails that falsely claimed that the 2010 health care reform legislation (which contained a burdensome 1099 reporting requirement, now repealed) imposed a 3.8 percent sales tax or transfer fee on all home sales in 2013. There is an element of fact underlying this rumor, but for the most part this claim is false.

The new tax added by the health care reform law is an add-on to existing taxes on capital gains and other unearned income (dividends, rents, and interest). The new 3.8 percent tax is often referred to as a Medicare tax because its revenues will be dedicated to the Medicare Trust Fund.

For capital gains, presently taxed at a 15 percent rate, the gains rate would rise an additional 3.8 percentage points for high-income taxpayers, those with adjusted gross incomes (AGI) above $250,000 ($200,000 if filing a single return). Capital gains arise with the sale of capital assets, such as stocks, bonds, and real estate.

Some second home sellers with high incomes may have to pay some additional capital gains tax to the extent that their AGI exceeds $250,000, but only on that portion of the gain that causes the taxpayer's AGI to exceed $250,000 and only for the realized capital gain - not the actual sales price.

- Courtesy of NAHB