There have been some questions raised recently regarding the new federal healthcare law and whether it creates a 3.8% sales tax on the sale of one’s home. While the new law does create a “medicare surcharge” of 3.8% on unearned net investment income for singles with an adjusted gross income (AGI) over $200k and married couples with an AGI over $250k, the capital gains exclusions for the sale of one’s principal residence of $250K of gain for singles and $500k of gain for married couples would still apply.
In a new Q&A on the health care law, NAR addresses this issue:
Q: Will the 3.8% tax apply to any part of the gain on the sale of a principal residence?
A: The new Medicare tax would apply only to any gain realized that is more than the $250K/$500K existing primary home exclusion (known as the “taxable gain”), and only if the seller has AGI above the $200K/$250K AGI thresholds.
So, for example, if the taxable gain was $30,000 and a married couple had AGI (which would include the taxable gain) of $180,000, the 3.8% tax would not apply because AGI is less than $250,000. If that same couple had AGI of $290,000, then the application of the 3.8% tax would be subject to the same formula described above. The $30,000taxable gain on the sale would be less than the $40,000 excess above $250,000 AGI, so the $30,000 gain would be subject to the new 3.8% tax.