Why Am I Paying a Tax on My Home Sale?

President Obama signed the Health Care Bill into law that did carry a new 3.8% Medicare Tax on the sale of homes. So does this mean that everyone is going to have to pay this 3.8% Medicare Tax on their home sale? The answer is maybe yes, maybe no but yet possibly. Put mildly this answer sounds like a government "maybe". Yet, the answer is truly dependent on circumstances. Provisions in the Health care Bill are just now coming to light after more people are performing detail examination. For an individual selling thier home more information has to be known to determine if the tax applies.



How to Know if You’re Hit by the Taxman

Well the bottom line is that the new 3.8% Medicare tax on a home sale takes effect in 2013. So it will be a while to even concern yourself. And when it does take effect it will not apply to certain homes that are sold. To be eligible for this tax you have to have in excess of $250,000 of adjusted gross income if married filing joint or $200,000 filing as individual. That takes a number of taxpayers out of the eligibility factor immediately. The next factor to be considered is that the capital gains exclusion on home sales still applies. That is $500,000 and $250,000 of gain is exempt if filing as married joint or as individuals respectively. After all these exclusions and you still are subject to the tax you might have hope because it is imposed on your "net investment income". This is easy right? The good news is that many taxpayers will escape the new 3.8% Medicare Tax on the home sale.



Explain A Little More Please

It would be good to go over the present rules of excluding gain on the sale of your principal residence.

  • It must be your main home which is the one you owned and lived in most of the time for at least 2 years out of the prior 5 years.


  • Upon selling your home you can exclude the amount of the gain as shown in the paragraph above. The important term is gain on the home sale and not the proceeds. Gain is the difference between the sale proceeds with allowed adjustments less the adjusted basis of the home you sold. IRS Publication 523 is a good resource to use to compute the basis of the home you sold. However, if you still have a taxable gain after you calculate the adjusted home sale proceeds minus the adjusted basis of the home minus the allowable exclusion, first congratulations, then this remaining gain could be subject to the new 3.8% Medicare tax.


  • But even then this new Medicare Tax on the home gain refers to including the residence gain in a household’s “net investment income”.


Thus One More Explanation Is Necessary

Could this gain on the residence be reduced further? Well again yes or no but possibly. To keep things simple let's determine what is "net investment income". The real worry can kick start in 2013.

IRS Form 4952 states that your gross income from property held for investment can be reduced by investment expenses resulting in net investment income. So the gain from the sale of the home is mingeled with other gains on their investment and then is reduced for investment expenses. The difference will be subject to the new Medicare tax. Just be aware that there is a new tax on the gain on certain home sales possibly looking for you!

Blog Article provided by Gainesville-Florida-Realty!