A 3.8 percent 'sales tax' on real estate transactions for health care?
By Angie Drobnic Holan
Published on Tuesday, February 1st, 2011 at 5:16 p.m.
It's an e-mail that's been popping up in our inbox again and again lately, with readers all asking the same question: "Can this possibly be true?"
The chain e-mail claims that real estate transactions will be taxed to pay for the new health care law supported by President Barack Obama and other Democrats.
"Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That's $3,800 on a $100,000 home etc. When did this happen? It's in the health care bill. Just thought you should know. ...
"The bulk of these new taxes don't kick in until 2013. 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."
The e-mail then urges you to click over to a blog entry from the Republicans in Congress from back in April that makes a similar argument.
We've seen and ruled on this e-mail before, but because it continues to bubble up, we thought it would be useful to reiterate our earlier ruling.
Both the chain e-mail and the blog post are deceptive, and here's why:
Instead of being a sales tax on all real estate transactions, the 3.8 percent tax is actually a tax on investment income for the wealthy. It applies only to the investment income of single taxpayers who make more than $200,000 or couples who make more than $250,000. (We looked it up in Section 1402 of the Health Care and Education Reconciliation Act of 2010, titled "Unearned income Medicare contribution.")
Still, maybe empty-nesters are scared they'll be hit with this tax if they sell their homes for more than $250,000. But that's not a likely scenario for most tax payers, because there's a long-standing tax exemption on the profits from home sales.
To be hit with the new tax, you would have to clear more than $250,000 in profit off your home, which means at least $250,000 more than you paid for it. And the ceiling is even higher for a married couple. Married couples are not taxed on the first $500,000 of profit from home sales. Again, that's profit, not the sales price.
When we first reported on this e-mail last year, we rated the chain e-mail's claim Pants on Fire, because it was written to deceive people into thinking that all home sales would be taxed. That wasn't the case then, and it's still not the case. Only high-earners will have to pay the tax, and then only if profits from the housing sale exceed the legal exemptions from taxes.
We're not the only ones to have debunked the chain e-mail's claims. Factcheck.org concluded in April that the tax "falls on relatively few — those with high incomes from other sources. " The urban legends site Snopes.com also debunked the claim that it was a tax on all real estate sales.
To be sure, the health care law does include new taxes. But the taxes won't hit most retirees looking to downsize their homes, except those who are also among the nation's highest earners. Because it seems aimed at scaring older Americans, we rated the e-mail's claim Pants on Fire. Our rating stands.
U.S. Government Printing Office, Health Care and Education Reconciliation Act of 2010, accessed Aug. 18, 2010
Thomas, Health Care and Education Reconciliation Act of 2010, accessed Aug. 18, 2010
Kaiser Family Foundation, Summary of new health reform law: Tax changes related to health insurance, last updated June 18, 2010, accessed Aug. 18, 2010
Interview with Roberton Williams of the Tax Policy Center
Interview with Clint Stretch of Deloitte Tax LLP
Internal Revenue Service, Publication 523, Selling Your Home, Maximum Exclusion, accessed Aug. 19, 2010
Bloomberg, Health Bill Would Add 3.8% Tax on Investment Income, March 18, 2010
PolitiFact, Return of the tax attack chain e-mail!, Aug. 4, 2008
Researchers: Angie Drobnic Holan
Names in this article: Chain email
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