There is some confusion out there as to what the new health care bill’s impact will be on real estate.
A number of articles we have seen have somewhat correct. but misleading information.
Hopefully, we can set the record straight.
Starting Jan. 1, 2013 a new tax will be initiated called the Medicare Tax to help pay for the health care bill.
This tax will affect passive income such as rental income and the sale of your home may also be taxed if the profit on the sale exceeds a threshold.
The new tax in not indexed for inflation, so quite possibly, as time passes, more of us may be affected.
The tax on passive rental income will be 3.8 percent on any total adjusted net income (including earned income) over $200,000/$250,000 (single/married) a year.
For most of us, this will not have a direct effect, however, if you have an investment in a Real Estate Investment Trust (REIT), it has potential to cause your investment income to decrease ... or will it?
For example, a REIT may own a large portfolio of apartment buildings where the income would certainly be over the annual tax threshold of $250,000.
REIT’s will want to maintain their income levels for their investors, and as with most corporate taxes, they will most likely be passed on to the person who can least afford the increase; the renters who are the guys and gals who make way less than $250,000 per year.
So while the government can brag that no one making less than $250,000 a year will have any new taxes directly levied on them, they almost certainly will feel the effect of the tax through increased rental payments.
Sort of reminds you of the sleight of hand game called Three Card Monte.
The homeowner will still get the current $250,000/$500,000 (single/married) tax exemption on the sale of their primary residence.
However, if the profit is greater than the previous stated amounts, the home seller will see the 3.8 percent Medicare Tax imposed on the profit that exceeds the profit thresholds.
Contrary to some reports, there has not been any nationwide federal tax imposed or “transfer tax” imposed on the sale of homes.
You may recall that Arizona voters passed a constitutional amendment to prevent such a state tax in Arizona.
This misunderstanding of a federal transfer tax may have started because of the government’s trial balloons concerning a value added tax (VAT), which could, if imposed, add a tax to the sale of your home.
As the New York Post writer Sally Pipes stated in a headlined article: “Obamacare Wins: Now the Pain Begins.” The surgery on your wallet may have started.
Ray Pugel is a designated broker for Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.