Nancy Pelosi told us that we’d have to make Obamacare law to find out what’s in it. Americans are clearly finding out just how true that is judging by my inbox. I’ve been getting email forwards left and right demanding to know if it’s true that the Obamacare legislation will impose a new tax on real estate.
That’s absolutely true. Here’s a summary of what’s in store:
One of the latest revelations is a 3.8-percent new tax on home sale “profits” when the equity pocketed by an individual seller exceeds $250,000 or $500,000 for a couple. We doubt many Americans for or against the health care overhaul expected it also to result in paying an additional tax on top of the existing capital-gains tax when they sell their homes.
It’s difficult to gauge the full effect, but real estate experts at Zillow.com tell us about 88 percent of Orange County homeowners with mortgages have some amount of equity. Of course, homeowners who paid off or substantially paid down their mortgages have considerable equity, and there aren’t many Orange County houses selling for less than $250,000, the new tax threshold for individuals.
The stealth 3.8-percent tax is piled on top of the capital-gains tax, which is 15 percent for people in most tax brackets, but will increase next year to 20 percent.
What’s interesting is that this tax won’t just be applying to the proceeds from selling your home, but also to any proceeds from real estate in general including rent. Meaning that land lords and property investors across the country will soon be passing this tax on to renters:
The new tax also applies to “interest, dividends, annuities, royalties, rents, passive income” as well as “net capital gain from the disposition of non-business property,” including personal residences.
To be fair, the tax doesn’t kick in until after the capital gains threshold has been passed, and applies only to single taxpayers earning $200,000 and joint filers at $250,000. But notice that the capital gains tax this new tax piles on top of is going up next year thanks to the presumed expiration of the Bush tax cuts.
This is a massive new tax, and while most Americans will fall short of paying it, it will mean more money out of the private sector and into government. Something we can ill-afford at this point.