Claim: A provision of "Obamacare" health care legislation creates a 3.8% Medicare tax on real estate transactions.
 | FALSE: Health care legislation imposes a 3.8% tax on all home sales. |
 | TRUE: Health care legislation imposes a 3.8% transaction tax on profits over the capital gains threshold. |
Example: [Collected via e-mail, April 2010]
3.8% tax on real estate transactions
Under the new health care bill - did you know that all real estate transactions are subject to a 3.8% "Sales Tax"?
You can thank Nancy, Harry & Barack (and your local Congressmen) for this one.
If you sell your $400,000 home, this will be a $15,200 tax.
Remember Obama’s battle cry — take from the workers and give to the drones.
TAX ON HOME SALES
Imposes a 3.8 percent tax on home sales and other real estate transactions.
Middle-income people must pay the full tax even if they are "rich" for only one day — the day they sell their house and buy a new one.
Origins: One of the provisions in the reconciliation bill (
The PPACA creates a new Code Section 1411, which will generally impose a
This is a complicated section of a complicated piece of legislation, and the 3.8% Medicare tax has been frequently misreported as amounting to a 3.8% "sales tax" on all real estate transactions. This is incorrect: the Medicare tax is not a sales tax, nor does it apply to all real estate transactions; it is a tax on investment income (income which may or not derive from the sale of property) only for persons who earn more than the amounts specified in the bill.
First of all, the Medicare tax will be imposed only on individuals with an income above $200,000 and couples with a joint income more than $250,000, a figure which currently excludes about 97% of all U.S. households. Second, the tax will not be assessed on every house sale, but only on real estate transactions that produce profits over a specified dollar amount. As Sara Orrange, Government affairs director of the Spokane Association of Realtors noted in response to a repetition of the "sales tax" rumor in the Spokane Spokesman-Review:
Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made. This tax is aimed at so-called "high
In his recent guest column regarding the impact of the health care bill, Paul Guppy of the Washington Policy Center claimed that a
For example, let's assume that a couple with an income of $325,000 bought a house in 2004 for $300,000 and resold it in 2013 for $850,000, thus producing a $550,000 profit. Since U.S. law allows a couple to exclude from their gross income
profits of up to $500,000 from the sale of their principal residence, the taxable gain from this sale would be $50,000 (i.e., a $550,000 profit minus the $500,000 exclusion), and the couple's taxable income would now be $375,000 (i.e., the original $325,000 plus the $50,000 of taxable profit from their home sale). The 3.8% Medicare tax would now apply to whichever of the following dollar figures is the lesser:
- a) The amount by which the couple's taxable income now exceeds the $250,000 income threshold level.
- b) The amount of taxable income gained from the sale of their home.
In case (a), the dollar figure would be the couple's taxable income ($375,000) minus the income threshold level ($250,000), or $125,000.
In case (b), the dollar figure would be amount of taxable income gained from the sale of their home, which, as detailed above, was $50,000 (i.e., $550,000 profit minus the $500,000 exclusion).
The second dollar amount is the lesser of the two, and therefore the couple would have to pay an additional tax of
The referenced tax is therefore not a tax on all real estate sales; it is an investment income tax which could result in a very small percentage of home sellers paying additional taxes on home sales profits over a designated threshold amount. In short, if you're a "high earner" and you sell your home at a substantial profit, you might be required to pay an additional 3.8% tax. However, given that only about 3% of U.S. households have incomes that exceed the specified income threshold amount, the existing home sale capital gains exclusion on a principal residence ($250,000 for individuals, $500,000 for couples) still stands, and the national median existing-home price in January 2012 was only $154,700 , the Medicare tax will likely affect only a very small percentage of home sellers when it is implemented in 2013.
Additional information:
 | The 3.8% Tax: Real Estate Scenarios & Examples |
Last updated: 15 March 2012
 | Sources: |
Donmoyer, Ryan J. and James Rowley. "Health Bill Would Add 3.8% Tax on Investment Income." BusinessWeek. 18 March 2010. Sahadi, Jeanne. "Medicare Tax Hikes: What the Rich Will Pay." CNNMoney.com. 25 March 2010.