Heard a couple guys discussing this at the feed store and they had it all wrong. As Mark Twain said “A lie can travel halfway around the world while the truth is still putting on its shoes”. Here are the FACTS:
YES: At the last minute, Democratic lawmakers decided on a new 3.8 percent tax on the net investment income of high-income persons. But the claim that this would amount to a $15,200 tax on the sale of a typical $400,000 home is utterly false.
1.) FACT: Only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home. 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. 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.
2.) FACT: For the vast majority, the 3.8 percent tax won’t apply. The Tax Foundation, in a report released April 15, said the new tax on investment income (including real estate) “will hit approximately the top-earning two percent of families” when it takes effect in 2013.
3.) FACT: A typical home sale would not incur any tax. In March, for example, half of all existing homes sold for $170,700 or less, according to the National Association of Realtors. Obviously, none of those sales could possibly generate a $250,000 profit, and so none would be subject to the tax.
Here’s an interesting footnote: Some of the chain e-mails that claim ordinary home sales will be taxed include a copy of an article written by Paul Guppy, a policy analyst with the conservative Washington Policy Center (that’s Washington state, not Washington, D.C.). The article appeared March 28 as an op-ed in the Spokane, Wash., Spokesman-Review, and Guppy claimed that “[m]iddle-income people must pay the full tax even if they are ‘rich’ for only one day.” That brought a quick rebuttal from Sara Orrange, the government affairs director of the local Realtors association. She wrote a letter to the newspaper calling Guppy’s article “inaccurate” and saying, “Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made.” In a news article the next day, business reporter Bert Caldwell confirmed that only “a very few” home sellers would pay the 3.8 percent tax.
So our own local newspaper is ground zero for this misinformation – nobody in the editorial department seems to have checked on the truth behind Mr. Guppy’s assertions.