3.8% Sales Tax on Real Estate sales?

By
Real Estate Agent with Coldwell Banker Residential

An agent in our office received this in her e-mail.  She asked her husband (the real estate attorney) if it were true.

Neither of them had heard anything about this.  You would think that if this were true, one of the two of them, would know something about it.

____________________

I immediately hit the internet
searching for the answer. 
It must be true, after all, it says
"verified" right in the e-mail itself.
____________________

Well, as you can imagine it's only fractionally true.  If you happen to run across this e-mail, or a client of yours calls panicky after reading this e-mail, you'll know the facts:

According to FactCheck.com only a tiny percentage of home sellers will pay the tax. Only those with incomes over $200,000 a year (or $250,000 for married couples filing jointly) will be subject to it.

And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.

I think this stands repeating:  ONLY those with incomes of $200,000 or more will be subject to it (or $250,000 for married couples filing jointly).  And the tax will only be on the portion of your PROFIT that is above $250,000, (or $500,000 for married couples).

So... instead of an additional $15,200 tax on the sale of your $400,000 home.  It's possible you'd have ZERO additional tax if you don't make $200,000 a year.  And if you do make more than that... and you make no profit... you'd still have a ZERO additional tax burden.  Let's say you were lucky, you manage to make $300,000 a year in income, and you sold your home for a $100,000 profit.  You'd only be paying $3,800. in additional tax.  $11,400 less than the inflammatory e-mail suggests.

And snopes.com has a slightly different take, still saying that it's wrong and misleading, and that someone making over $200,000 who sells their $2 million dollar home for a $750,000 profit would only have a $9,500 tax burden.

This is, of course, in additional to any existing state and local taxes you already have.

I don't know exactly what the agenda is, of the sender of this e-mail... (although I could venture a guess, and I imagine it's somewhat political)... but TRUTH, was not on that agenda.

UPDATE:  Turns out my buddy Matt Stigliano wrote a great post about this very subject (and did a better job than I did) in April!!

Posted by

 ALAN MAY, Realtor®
Specializing in Evanston Real Estate and North Shore Real Estate

Coldwell Banker Residential Real Estate, 2929 Central Street, Evanston, IL 60201
847.425.3779      Cell: 847.924.3313      Email: Almay@aol.com

Evanston Real Estate & North Shore Real Estate
Licensed in Illinois

   

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Show All Comments
Rainer
165,557
David Evans
RE/MAX TOWN AND COUNTRY - Cumming, GA
HUD NLB Cumming GA

I did get a cal from a client from this email yesterday! I had heard a little about it, but I want to thank you for the info here. Now I can discuss this with them in a specific manner. I am disaapointed the NAR has not sent any advisory to my attention in this regard, it is a new tax even if it doesn't effect many...

September 21, 2010 11:51 AM #111
Rainmaker
101,562
Robert T. Boyer
FHA Loan, VA Loan, Jumbo Loan,FHA Loans,VA Loans,Jumbo Loans - La Jolla, CA
San Diego Real Estate & Mortgage Loans, Ph.D. | VA Home Loan

> So... instead of an additional $15,200 tax on the sale of your $400,000 home.  It's possible you'd have ZERO additional tax if you don't make $200,000 a year.

Alan, as I understand it, if you are married, there is NO possible tax on this home regardless of income, because $400K sales is less than $500K deductible.

> they feel that their constituents are imbeciles

Well.... ?

September 21, 2010 11:52 AM #112
Rainer
143,773
Ben Yost - 303-587-4297
First Time Home Buyer, Mortgage Rates, Pre-Approval - Denver, CO
FHA, VA, Homepath and Jumbo - Mortgage Loans in De

Good post!

Good news is that once the Gov't gets their foot in the swimming pool- the rest of the body seems to follow.

So, I'm sure it will be just a matter of time before, they Tax everyone on the sale of their homes.

 

September 21, 2010 11:53 AM #113
Rainmaker
799,374
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
your real estate writer

Our new regulations have so many twists and turns - I don't think ANYONE knows what's hidden in the health care bill nor in any of the new financial regulations. How could they when each is more than 1,000 pages long AND the wording is open to interpretation?

September 21, 2010 12:00 PM #118
Rainmaker
141,974
Marshall Brown
Mid America Inspection Services, LLC - Fargo, ND
BSEE, CHI

So much of the political I get via email is absolute BS! I find it particularly embarrassing since currently most of it is coming from people who claim the same political heritage I do. I do remember things were fairly nasty on the other side of the aisle when the scape goats were Dan Quayle and Gerald Ford but frankly it wasn't right then and it's not right now.

I also think it it is counter productive. Would you put much worth in statements that might be correct from someone who sends out BS much of the time. I think not.

If you want to make a political point with me tell me the facts that support your belief, not a picture of the president's wife pointing out you can see her underwear through her slacks. (Yes someone did!) I have still to figure out why this was considered politically important or why it proved his policies more or less desirable.

September 21, 2010 12:03 PM #119
Rainmaker
996,054
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Alan:  This is just ANOTHER example of the rampant fear-mongering tactics of the "Sarah Palin" types, and the "Tea Party" types.  Such absolute SLUDGE they throw around.

They try and scare the poop out of folks, and then tell them... "But... vote for ME... and I will save you."  Yeah, right.  But who will save us from "them ?"

Fear-mongering... or, as it appears... "anything that works."  Just wait till these Tea Party types open up their "present"... and see what is REALLY inside.

Thank you SO much for this post.  Well done, and well explained.

September 21, 2010 12:05 PM #120
Rainmaker
214,885
Jeremy Wrenn
Wrenn Home Improvements - Wake Forest, NC
President, Wrenn Home Improvements

At least you checked before passing it along.  The responsible way to live!

September 21, 2010 12:07 PM #121
Rainer
18,099
Mercy Stirling de Duenas
Trilenium Real Estate - Tucson, AZ

Thanks for taking the time to debunk one of the MANY false emails that are coming across my email box..I am sick of all the lies and political agendas that are being spammed throughout the country and across the world...the TIME that it takes to debunk them - and the energy...and most people never even check out half the crap that we are sent like this...and many just FORWARD them...ugh!

September 21, 2010 12:08 PM #122
Rainmaker
180,245
Cameron Wilson
Labrum Real Estate - Murrieta, CA
The Short Guy - Murrieta,Temecula,Menifee California

I received that e-mail a couple months ago and even though it's misleading it still sucks that another tax is being pushed on people.

September 21, 2010 12:18 PM #126
Rainmaker
996,054
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

NOTE:  I just read Mercy's comment # 124..., and had not heard of her before.  I clicked on her link, and found that she works with real estate sales and rentals in Mexico.  Although I had no interest in going to Mexico... I was curious about what she did... so, I clicked on her blogspot blog... and found Mercy and her blog to be just an ENDLESS fountain of a wide variety of information.  I recommend taking a look.  (thanks for the space, Alan !)

September 21, 2010 12:24 PM #127
Rainmaker
189,903
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

Thanks for confirming what I thought when I saw this email myself:Slander against the Democratic Party. Obviously from your article here, there will be hardly anyone that will actually pay any new taxes.  It is amazing the lies people will intentionally tell for political reasons. Politics sucks.  Let's fix our country rather then just do politics all the time.

September 21, 2010 12:25 PM #128
Rainmaker
1,243,213
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

It may not be as bad as they said, and this kind of exaggeration goes on both ways, but it is still one more Tax we do not need. 

September 21, 2010 12:47 PM #132
Rainmaker
78,606
Rick Fifer
FLORIDA EXECUTIVE REALTY - Tampa, FL
REALTOR, Heights Bungalows and Vintage Homes

Alan- I haven't seen this one but I have seen the one that claims all homes will need to be retrofitted to conform to any carbon tax. Just as in the email you posted, truth and facts were sorely missing.

I don't usually get many of these because my friends, aquaintances, relatives, etc don't like my rebuttals to garbage.  If I have to take my time to research the veracity and it is mostly or completely false, I do a reply to all and will go several forwarded generations with the facts.

Unfortunately, knee-jerk Obama haters will only read what they agree with.  Just as knee-jerk Bush haters before them.  Sadly we have become a nation of the lazy when it comes to sorting truth from fiction.  Just as sadly that too many seem to lack reading comprehension skills.

 

September 21, 2010 12:56 PM #133
Rainer
20,565
Jami Van Den Bogaert
RE/MAX House of Brokers - Springfield, MO

I am an investor/real estate agent living in MO and luckily I can survive nicely on less than $200,00 per year. I feel sorry for people trying to live in California or other places where cost of living is 10 times what it is here. $200,000 is probably what you need just to have a decent life there and they are going to be punished for making some money on investment realestate.

That 250k/500k exemption is only if you have lived in the house as your personal residence at least 2 out of the last 5 years. If it is investment property and you only make 50K but happen to make above 200k then you are stuck paying the tax. Maybe if there were more incentive for people to actually have ambition and make money then our economy would fix itself.

September 21, 2010 01:13 PM #136
Ambassador
984,597
Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Wow... this has turned into a political thread, and that's not what it started out to be.  All I wanted to do was debunk an e-mail that had gone out.  I wasn't trying to throw mud on any particular party, nor was I indicating that I was for, or against any form of taxation (whether buried deep in a health care program, or out in the open like an income tax).

I started responding to each individual, which in my opinion, those who comment on my blog deserve.... but the comments I made, when about 2/3 through... crashed and were lost... so... sorry.

But since this has turned into a political free-for-all, regarding taxation and party misrepresentation... I'm sorry... but I refuse to participate.

My only purpose in disseminating this information was to debunk an e-mail that we, as real estate professionals, might run across, or our clients might ask bout.  And we should be able to give them the facts, without adding in our own "political agenda" as we do.

If the post continues to be grossly political in nature... since it's my post, I'll shut down comments, and delete those I perceive to be the major offenders (both sides).

Please, let's return to the topic at hand, and step back from the teleprompters, shall we?

Thank You.

September 21, 2010 01:15 PM #137
Rainmaker
185,089
League City, TX - Worrell Team, REALTORS, GRI, CNE
Bayou Properties Realty - League City, TX

Lyn, I didn't say $200k is rich.  I said it doesn't happen in my area that people make a $200k profit when selling their home.  The nature of that email is severely misleading.  And Realtors everywhere seem to think it's a good idea to fuel the fire by making millions of Americans angry about this when it will not even affect most of them.   Not many people I know will even be affected.  How many people buy a $200k home and sell it for $450k?  It just doesn't happen in my area.  And if they were married, they'd have to sell that same $200k home they bought for $700k.  That's just not going to affect the majority of Americans.  Basic math.  Even if someone does sell that home for $700,000, they still keep $481,000 of their profits.

SO, it's not a tax on your income -- It's a tax on someone else's income -- unless you make a huge profit on your home sale.  So, 99% of Americans should be in favor of this.  Again, it's pretty basic.  If I'm not paying for this tax myself, why should I be so opposed to it?  Majority rules.  And we should be in favor of this.  So sorry to all of you who think everything should be free.  If you're smart, you realize it's not.  And at least most of you aren't going to have to pay for it with this tax.  It simply won't affect 99% of you.  Think people.

September 21, 2010 01:22 PM #138
Rainmaker
189,903
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

Alan, you are 100% right, more politics is not the answer.  Let's all stop it right here and now and get back to our business of doing real estate.

September 21, 2010 01:23 PM #139
Anonymous
Anonymous
Gary Ytreeide

Alan

I saw that post abt a month ago and did some investigation, coming up with the same results you had.  I sent it out to our board members, but somehow the message was suppressed. 

However, what really upset me was an e-mail  from our county attorney this morning that stated that members of congress, i.e. our representatives & senators are exempted from the health care bill. 

He is proposing a constitutional amendment requiring congress to abide by the same laws as the citizens.  I haven't done any research on this , but on the surface it does not seem to be a bad idea. 

 

September 21, 2010 02:15 PM #142
Rainer
50,273
Tim Klingman
North Shore Homes, Inc. (Milwaukee, Wisconsin) - Whitefish Bay, WI
President

A few of our agents were in an absolute lather about what they understood to be a 3.8% tax on the full purchase price and our sales meeting last week turned into an amusingly loud politrickal (I mean political) debate. 

When we presented the math and asked our agents whether anyone has even seen a $250k+ or $500k+ gain in their long careers, we couldn't find an agent whose sellers would have ever been subjected to this, and we have plenty of experience in $1 Million + homes.

Much ado about nothing.  Gotta love the Internet.  We advised our agents to refer any sellers to their accountants for professional advice.

September 21, 2010 02:21 PM #144
Ambassador
984,597
Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

We're clearly intent on dragging this into the political mud.  Sorry, further comments closed.

September 21, 2010 02:26 PM #146
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Ambassador
984,597

Alan May

Evanston & Northshore of Chicago real estate
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