“The Myth About Obamacare and Conveyance Taxes”
The other day while perusing my Facebook timeline, I came across a comment stream about the tax implications of Obamacare on the purchase and sale of real estate. You’ve seen the emails, you’ve heard the rhetoric and there’s certainly been plenty of misinformation to go around, so I checked Snopes.com. Then as I started writing this, the National Association of Realtor monthly magazine published an article which also sets the record straight. Here are the facts, just the facts, which make them a little dry:
1) The tax doesn’t target real estate. It’s a tax on capital gains and there’s a formula that’s applied.
2) There are income guidelines. A single filer must earn more than $250,000. Joint filers must earn more than $500,000. If a single filer earns $249,999, they would be exempted.
3) The first $250,000 – $500,000 of capital gains are exempt and remember, single filers must first earn $250,000 per year, while joint filers must earn $500,000 per year to qualify.
4) Only the amount of capital gains that fall above the exclusion, are subject to the application of a formula which determines whether to apply the 3.8% tax or not.
5) If you are among the 2-3% of the population that qualify for the tax, it is paid as part of your income tax burden the following year, not at the closing table. For more detailed information speak to a qualified tax advisor.
6) NAR is not advocating a repeal of Obamacare.
There was also some confusion about who pays the conveyance tax. The seller pays conveyance taxes out of the proceeds of the sale of the property. In the case of a short sale, the lender pays the conveyance taxes through the proceeds of the sale.
The state conveyance tax is currently .75% (.075) and it only applies to the part of the sale up to and including $800,000. Taxes for sales in excess of $800,000 pay a conveyance tax to the state of 1.25% (.125) on the portion which exceeds $800,000. They still pay .75% on the first $800,000.
The municiple conveyance tax rate is .25% (.025) but certain communities can charge up to another .25% in communities deemed target investment communities.
Got more questions? Give me a call, or drop me an email & let’s discuss them!