Taxes and the ACA: Home Sales Killer?

One goal of my �Quest for Simplicity� is to explain the ACA in terms we can all understand, so we can decide what parts of the law we should keep and what we should change.  In previous articles, I have discussed the costs and complexity of our current insurance and medical care financing.  Basically, our lawmakers decided to build upon this ineffective system when they could have cleaned it up, simplified, improved efficiency, and cut costs.

Title IX of the law contains the revenue provisions, and of the 2,409 page bill, it only took 93 pages to decide how we fund this large piece of legislation.  The law pieces together various taxes, fines, and complicated formulas to come up with the revenue to cover the costs of reform.  In this article, I begin sharing what hits individuals in the pocket directly.

To start, my inbox contained a message from a client this week, sharing an email forwarded to her and asking �Is this true?�  I get that question a lot from people, and attached to the question is discussion of some part of the health reform law, with the contents totally skewed away from reality.   That was the case with this email.  Here is an excerpt:

�If you own a home, please read this.  THIS WILL BLOW YOU AWAY!  The National Association of REALTORSis all over this and working to get it repealed, before it takes effect�  Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it?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 and goes into effect in 2013. Why 2013?  Could it be to come to light AFTER the 2012 elections?  �  This bill is set to screw the retiring generation who often downsize their homes��

The email my client received has been going around for quite some time, and FactCheck.org nicely debunked the bunk a while ago.   The internet is a powerful space, and allows people to perpetuate misconstrued provisions easily.  I�m sad and amazed that this bad information is still around.  Thank goodness, smart people like my client check the facts before forwarding inflammatory nonsense.

So what is the real story?

There are two taxes for individuals who make adjusted gross income over $200,000 and couples who make over $250,000.  So these taxes hit only the top earning 2% to 3% of filers.

One tax is a 3.8% tax on �unearned� income over the $200,000/$250,000 threshold.  This is income on interest, dividends, capital gains, net rents, royalties, and annuities.  Remember, the extra tax is only on the amount above the $200,000/$250,000 threshold.  Mitt Romney will definitely pay more taxes in 2013, as his income is the type that will be taxed.  He�ll move up from his 13.9% tax rate to about a 16.7% tax rate.  Based on his 2010 return, he will have to pay an additional $784,741 in taxes.

The other tax is an additional 0.9% Medicare tax on �earned� income over the $200,000/$250,000 threshold.  Since Mr. Romney had earned income below this amount, he will not be subject to this tax.

So how does this affect the sale of a home?

Currently, when a person sells a home they have lived in longer than 2 years, they can exclude the first $250,000 of gains.  A couple can exclude the first $500,000 of gains.  For example, if a couple has a $1,000,000 home with $600,000 of gains, they would have to pay the 3.8% tax on only $100,000 of the gain.  Given that very few people are sitting on large gains right now and the majority of home sales (not just gains) are for less than $250,000, this tax will hit truly only a small number of people.

So what does the National Association of Realtors have to say?  Are they trying to get it repealed?  Obviously they are not fond of the tax, and gratefully, they are not perpetuating the bull.  They have a very nice area of their website explaining the tax and their stance.  Kudos to them for not inflaming the Realtor masses and for correcting the misinformation.  Overall, their stance on health care reform is reasonable given their role in standing up for their constituents� needs.  Maybe they would consider the �third way� of decreasing cost and complexity if they knew about it?  It is much better than going down the road of extra taxes.

As always, thanks for reading, and feel free to comment on this post (preferred so we can share the conversation with others,) through Twitter @CarolynMcC, or email at carolyn.mcclanahan@gmail.com.