The National Association of Home Builders (NAHB) reminds you not to believe everything you hear. They want to assure home buyers and builders alike that the new 3.8 percent Medicare tax is not a straight tax on new home sales. In a statement released Friday, the NAHB stated that the tax increase may affect some real estate investments through capital gains and rents, but it will have a “negligible impact on sellers of principal residences.”
Revenues from the new tax will be dedicated to the Medicare Trust Fund, and the tax is an addition to existing taxes on capital gains (on the sale of real estate, bonds, stocks, etc.) and other “unearned income” (rent, dividends and interest) for households earning more than $250,000 ($200,000 if filing as “single”). However, the tax will not have any impact on the sale of principal residences, which are subject to the existing $500,000 / $250,000 gain exclusion.
The tax will affect high-income individuals who report taxable income due to capital gains, for example, on the sale of a home, but they will only pay increased taxes on the portion of the gain that causes the individual’s AGI to exceed $250,000.
Still confused? The bottom line is: “the 3.8 percent tax is not in any way a sales tax paid against the sales price of the home for either the home seller or home buyer. Nor is it an additional business income tax for home builders selling a new home out of inventory.”