March 5, 2012
The internet has recently been the source for some real estate related misinformation. Imagine that, misleading stories on the web! This story has been circulated via mass email and agenda driven web news sources.
The message typically claims that the recently enacted Affordable Health Care Act will add a 3.8% transfer tax to the sale of all real estate and other similar transactions.
This is not true.
Here are the details of the law as provided by the Minnesota Association of Realtors:
“The health care legislation enacted in 2013 included a new tax that was designed to affect upper income taxpayers. The 3.8% tax is imposed ONLY on those with more than $200,000 of Adjusted Gross Income (AGI) ($250,000 on a joint return). The tax applies to investment income, defined as interest, dividends, capital gains and net rents. These items are all included in an individual’s AGI. A formula will determine what portion, if any, of these types of investment income would be subject to the tax. The tax is NOT a transfer tax on real estate sales and similar transactions. Not long after the tax was enacted, erroneous and misleading documents went viral on the Internet and created a great deal of misunderstanding and made the tax into something far more draconian than the actual provisions. The new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax. The amount of tax will vary from individual to individual because the elements that comprise AGI differ from taxpayer to taxpayer.”