Does the health care bill impose a tax on the sale of your home?

By Ronald Kramer

We have received many inquiries from clients and friends of the firm regarding the veracity of claims that the new health care legislation will impose a 3.8 percent Medicare tax on sales of personal residences beginning in 2013.
 
Are these claims true? The answer is: Maybe.
 
The 2010 Health Care Reform legislation includes a provision to tax the net investment income of high-income individuals at the rate of 3.8 percent. The new tax on unearned income will be allocated to Medicare to help pay for health care reform. The tax will be effective for tax years beginning after December 31, 2012.
 
As noted, the tax will generally impact only high-income individuals; those filing joint returns reporting modified adjusted gross incomes of $250,000 or more, or more than $200,000 for single taxpayers.
 
The gain on the sale of a personal residence is subject to special tax rules. In general, the current tax rules affecting sales of personal residences provide for an exclusion of up to $500,000 of the gain on sale for married taxpayers and up to $250,000 for single individuals. The new Medicare tax will apply only to a taxable gain in excess of the $500,000 or $250,000 exclusion amounts.
 
Therefore, reports circulating that the new health care legislation will tax the entire gain on the sale of your personal residence beginning in 2013 are false. Only those taxpayers who meet the high-income thresholds and are lucky enough to have a gain in excess of $500,000 (or $250,000 for single taxpayers) will have that gain subject to the new Medicare tax on unearned income beginning in 2013.
 
However, it should be noted that the gain exclusion rules apply to only one sale every two years. Accordingly, if you flip another house within this two-year period, the entire gain would be taxed and also could be subject to the 3.8 percent Medicare tax. Also, since there are some other quirky rules that apply to the gain exclusion on the sale of personal residences, you may wish to consult your tax advisor before you sell your home to avoid any unpleasant surprises.
 
Gains from the sale of rental property will be subject to the new Medicare tax beginning in 2013. However, the tax will not apply to a 1031 exchange of rental property.
 
For now, worry less about the Medicare tax and more about being able to sell your house at all!
 
About the author:
Ronald Kramer is director of Schneider Downs Tax Advisors. He can be e-mailed at rkramer@schneiderdowns.com.
 
About Schneider Downs:
Schneider Downs provides accountingtax, wealth management, and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client.
 
Reprinted with permission from Schneider Downs.
 
Related articles:

You may like these other stories...

A version of this article originally appeared at Practice Development Counsel. Many professions and industries struggle with inter-generational challenges. The advertising industry is just one of those industries...
By Phyllis Weiss Haserot, President, Practice Development Counsel This post originally appeared at Practice Development Counsel. Reflection is something I do a lot of – I have for many years quite...
By Jeff Davidson Whether you work for a large organization, a small accounting firm, or are self-employed, within the course of the workweek you'll undoubtedly encounter a variety of irritations, frustrations, and...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.