Dispel the Transfer Tax Rumor

The National Association of REALTORS works to promote home ownership and to protect property rights. In this vain, the NAR works to monitor legislation that adversely affects home owners. One of the common misconceptions currently out there is that beginning in 2013 there will be a nationwide tax on all home sales.

Home owners have been the target of a series of misleading email messages that claim that the federal health care bill contains a 3.8 percent “transfer tax” on home sales that will take effect in January 2013. This claim is not true.

The National Association of REALTORS produced a “Myth Buster” piece about the tax which is available at http://www.ohiorealtors.org/wp-content/uploads/LocalBoards/PrezColumns/MythBusters.pdf and 3.8% Tax. I wanted to provide you with independent support that the emails claiming that all home sales will be subject to a 3.8 percent tax are false. I searched www.snopes.com, a well known Internet resource; and www.factcheck.org, a project of The Annenberg Public Policy Center of the University of Pennsylvania.

The claim examined by www.snopes.com was “A provision of the health care legislation creates a 3.8 percent tax on all home sales.” Snopes posted that there was a mixture of true and false information. According to the site, it is false that the tax would apply to all homes sales. Snopes clarifies that the health care legislation imposes a 3.8 percent tax on profits over the capital gains threshold. Most people (95 percent) would not pay this tax. Snopes references it as an “investment income tax” which could result in a “very small percentage” of home sellers paying additional taxes on profits over the capital gains thresholds of $250,000 for individuals and $500,000 for couples. The tax would only apply to the amount over those limits.

The following question was posted on www.factcheck.org, “Does the new health care law impose a 3.8 percent tax on profits from selling your home?” The response was very similar to that of Snopes, that the tax would apply only in cases where the profits were over the capital gain limits of $250,000 for individuals or $500,000 for married couples.

The NAR provides an addition Q & A on the topic at www.REALTOR.org/healthreform including the following:

Q: Will the 3.8% tax apply to any part of the gain on the sale of a principal residence?

A: The new Medicare tax would apply only to any gain realized that is more than the $250K/$500K existing primary home exclusion (known as the “taxable gain”), and only if the seller has AGI (Adjusted Gross Income) above the $200K/$250K AGI thresholds.

So, for example, if the taxable gain was $30,000 and a married couple had AGI (which would include the taxable gain) of $180,000, the 3.8% tax would not apply because AGI is less than $250,000. If that same couple had AGI of $290,000, then the application of the 3.8% tax would be subject to the same formula described above. The $30,000 taxable gain on the sale would be less than the $40,000 excess above $250,000 AGI, so the $30,000 gain would be subject to the new 3.8% tax.

There has been much confusion over this 3.8% transfer tax. The _________ Board of REALTORS want’s to put a stop to the transfer tax rumors. And remember, when buying or selling a home be sure to contact a REALTOR.