A few months ago, a health care bill turned the country upside down on the subject of the “National Real Estate Transfer Tax.” Both sides have argued whether or not the new “Real Estate Tax” exists. Some might even be asking what a Transfer Tax is. Unlike property taxes, real estate transfer taxes are state and local taxes that are assessed on property when ownership of the property is transferred between parties. These taxes are used in many areas to fund programs designed to preserve rapidly depleting spaces in commercial or residential areas, and to fund housing programs for low-income residents.
With all the confusion and controversy we do have a better explanation!
Effective January 1, 2013, singles with annual gross income over $200,000, and married couples with annual gross income over $250,000 will have to pay 3.8% tax on profit from the sale of their property. This is not an income tax. All revenue collected by tax is dedicated to the Medicare hospital insurance program. This tax doesn’t apply to everyone, but it WILL apply to those that profit on the sale of their home.
The up to $500,000 exclusion of gain for married couples (or up to $250,000 for single taxpayers or those who file a separate tax return) has not changed. If you have owned and lived in your home for at least two full years within the five years before the home is sold, you will be able to take the appropriate exclusion.
For example, your adjusted gross income is $150,000. You sell your house and make a profit of $400,000. There is no change in the way you determine your gain. You take your purchase price, add major improvements you have made and subtract that number from the net sales price. If you have lived in your home for at least two out of the last five years, you are eligible to exclude all your profit.
The new tax only applies to home sale gains in excess of the $250,000/$500,000 that push the individual or couple over the annual gross income level of $200,000/$250,000 limit. Everyone’s situation is different. Please consult your tax professional or attorney to determine your qualifications. Click here for more information from the National Association of Realtors. Or visit IRS.gov
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