HealthCare Bill TAX on Home Sales
As we digest the HealthCare Bill more hidden gems come to light.
For your consideration, a tax on home sales. Another 3.8% tax.
The Health Care and Education Reconciliation Act of 2010, which President Obama signed into law March 30, is comprehensive and complex. Section 1402, “Unearned Income Medicare Contribution,” imposes a 3.8 percent tax on profits from the sale of real estate — residential or investment.
The levy is aimed at high-income taxpayers, and it will not take effect until Jan. 1, 2013.
If your Adjusted Gross Income (AGI) is above $200,000 then the tax applies to you.
I remind you all of our Congressional and Senatorial “Representatives” voted for this bill, despite not having read it.
Did you know this bill also taxes Distributions from your 401K and IRAs? That is another 3.8% tax.
But gosh, you say! Didn’t Obama promise if your income is below $250,000, he would not raise your taxes?
If you are over $200,000 and that is not uncommon in Connecticut with two working spouses, if your house sold for $375,000 and you bought it for $125,000, again not that uncommon, you’ll owe Obama, Courtney, DeLauro, Larson, Himes, and Murphy, and Dodd, and Lieberman….$9,500.00 at closing. OUCH!
As anyone who has moved knows finances get tight when moving. This will hurt our Senior Citizens, those about to be on fixed incomes as they downsize for their retirement years. They will have been on average in their homes the longest and hence have the highest “realized profit” from their homes, their single greatest investment.
It will also create a disincentive to move for a better paying job. The additional increase in salary to warrant a move to a better paying job has just gone up 3.8%.
And the “realized profit” from the sale of your home will have NOT been indexed to inflation.
What is it with this crew? They are taxing our retirement vehicles.
And the $200,000 AGI trip point for the tax is NOT indexed to inflation, as the years go on and we receive raises to compensate for inflation more and more of us will hit the trip point, just like the AMT. Alternative Minimum Tax, which way back when was only supposed to target “Rich People” who avoided paying their fair share.
Couple this also with the non-renewal the so called “Bush Tax Cuts” and we are about to be taxed a whole lot more.
Taxes with set trip points such as this one are particularly bad, because taxes create a disincentive to work in overt and subtle ways. It is easy to view a scenario in the coming years where a couple about to retire have their home on the market which they have owned for 30 plus years. The home in five years, lets say is selling for $500,000 and originally cost $150,000 when bought. If the couple is making anywhere close to $200,000 they will try to minimize any future gains in AGI as to not hit the magic $200,000 AGI. Thus a disincentive to work has been created. No overtime, refusal of raises and maybe a part time job will be quit. This is a disruption of the normal economic workings. Not good.
