Just the Facts, Ma'am

Did you hear about cashiers stealing money from people by initiating cash back requests on their cards?
Did you know your stomach will explode if you eat pop rocks and coke together?
Have you heard Obamacare is going to to cost you thousands of dollars in sales tax when you sell your home?

None of the above statements is true.

Well, okay, the last one is partially true, but there has been a lot of exaggeration and inaccurate information circulating out there.  Let's take a look at the details. 

Code Section 1411 of the Patient Protection Affordable Care Act (PPACA) will impose a 3.8% Medicare tax (not a sales tax or a transfer tax) on "unearned" investment income, starting in 2013, including capital gains, dividends, interest and rents minus expenses.  The tax will also apply to some real estate transactions under certain circumstances:

• The tax will be imposed on individuals with adjusted gross income (AGI) over $200,000, or couples filing jointly over $250,000 (about 3% of all American households).
• The tax will be imposed on profits realized over the capital gains thresholds - $250,000 for an individual or $500,000 for a couple.
• The tax applies to the lesser of two amounts: the profit over the capital gains exclusion, or the amount by which the income (increased by the net profit) now exceeds the threshold allowed.

Example:  A married couple has an AGI of $325,000. They purchased a home many years ago for $350,000 and sell it for $900,000, making a profit of $550,000. After excluding $500,000 from their gain of the sale, they are left with $50,000 investment income.  Their AGI is $75,000 over the married threshold amount of $250,000.  The lesser amount of $50,000 would be subject to taxation – at 3.8 percent they would owe $1,900.

 The revenues generated from the tax will be allocated to the Medicare Trust Fund, which is currently on shaky ground.  The thresholds are not indexed for inflation, so as time goes on more people will be impacted, which is a concern for those of us who make a living helping people buy and sell homes.  Regardless, this tax and the debate around it highlights again the importance of doing your homework and talking to experts in the field.  If you find you need clarification on real estate issues, or need help debunking the current urban legend, give me a call.

image:  samantha celera, anja_johnson

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I would love to help you with your real estate journey. 

Please contact me at 303-917-7143 or robbin@stauferteam.com

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