Contrary to Rumors, Health Care Tax to Have Little Impact on Principal Home Sellers

As the media centers on this week’s Supreme Court decision on the health care law, builders and the residential construction industry continue to wrestle with false rumors circulating the Internet that the new 3.8% Medicare tax on so-called unearned income set to take effect in 2013 is a straight tax on the sale of a home.

This is not the case.

The tax increase on capital income — such as capital gain and rents — will affect some real estate investments. However, it should have a negligible impact on sellers of principal residences.

The 3.8% Medicare tax will affect high-income taxpayers who report taxable income due to capital gains and other non-wage income. It will not affect income that is currently tax-exempt, including most capital gain due to the sale of a principal residence (due to the $250,000/$500,000 gain exclusion rules). Taxpayers with less than $250,000 in income will not see any increase in tax.

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