There is a new viral email circulating in right wing circles. It claims that, among the many evils of "Obamacare", every real estate sale will be subject to a new transfer tax of 3.8%. It goes like this:
"Under the new health care bill -- did you know that all real estate transactions will be subject to a 3.8% Sales Tax? The bulk of these new taxes don't kick in until 2013 (presumably after Obama's re-election). You can thank Nancy, Harry and Barack and your local Democrat Congressman for this one. If you sell your $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes. Is this Hope & Change great or what? Does this stuff makes (sic) your November and 2012 votes more important?
"Oh, you weren't aware this was in the Obamacare bill? Guess what, you aren't alone. There are more than a few members of Congress that aren't aware of it either (result of clandestine midnight voting for huge bills they've never read). AND, there are a few other surprises lurking
The first person to repeat this to me was one of the local crackpots, a racist Obama hater and, considering the source, I never doubted it was hogwash. I never investigated it, just assuming it to be untrue. But yesterday, a neighbor who seems rational and intelligent - a retired gym teacher who is in the process of selling her home - told me the same thing. She was quite adamant that it was true, that her broker had sent her an email about it, and it was more evidence of why we need to vote out those Dems who are picking our pockets to give health care to all those people who won't work for a living. Yes, it was in the back of my mind that I was talking to a person who has lived off our local school taxes her entire adult life, is married to another retired school teacher, the two of whom are now enjoying a very early retirement - on their taxpayer paid pensions - and about to take those taxpayer paid pensions down to Florida, where they already also own a second home.
It took me only a few minutes to source the truth - apparently Politifact has been on the case since August My neighbors are selling their home for $300,000, on which they owe a mortgage. Their takeaway will be less than $300,000. it is their primary residence. The tax policy on such a transfer has not changed.
And by the way, if you're an empty-nester of any means, and you're thinking of downsizing, part of your profits are already tax-free. There are long-standing tax exemptions on the profits from home sales. In general, if you sell your own home, individuals are not taxed on the first $250,000 of profit and married couples are not taxed on the first $500,000 of profit. Again, that's profit, not the sales price.
If you're wealthy and sell your home at a substantial profit, it's possible you might get hit with the new 3.8 percent tax on investment income. Most Americans won't have to worry about this, though.
As usual, there's a grain of truth in all this - wealthy investors, with a joint income over $500K, who sell investment real estate will have a 3.8% tax applied to the transaction, which will go to the Medicare trust fund. Formerly they paid 2.9% tax on such transfers, and the funds went elsewhere. This is a tweaking of tax law to divert some slightly increased taxes paid only by the wealthy into the Medicare trust fun.
I'm going to print out the Politifact page and put it in my neighbor's mailbox. I thought maybe some other people would like to have the facts handy as well, should they run into this latest bit of insidious disinformation.