Clearing Up Rumors About the 3.8% Healthcare Reform Bill Real Estate Tax

 

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It’s easy to understand the immediate hype that came about once the new Healthcare Reform Bill of two years ago resulted in a new real estate tax to be imposed beginning January of 2013. But a lot of the hype has been misguided. In fact, today I’d like to clarify exactly how and when the tax applies.
 

New Real Estate Tax Applies To Transactions With Capital Gains

Keeping in line with capital gains tax laws, single persons are exempt from taxes on up to $250,000 of capital gains and married couples exempt up to $500,000 of capital gains.

In other words, considering a home that was bought for $300,000 and then sold for $400,000 – there is a no capital gains tax for either a single person or married couple since the profit is only $100,000 on this property. Assuming you fall into the category of applicable taxpayers, you only pay taxes if you sold it for over $500,000 of your purchase price. Consider a home owned by a married couple that sold for $900,000. The $600,000 profit will result in a capital gains tax on $100,000 of the profit – the amount that exceeds the $500,000 limit. In this scenario if it were an unmarried seller there would be a capital gains tax on $350,000 of the $600,000 profit.

Tax Applicable Only For Higher Income Individuals and Couples

Many people have been under the impression that all home sales will be taxed – for example according to common misinformation the sale of a $300,000 home would generate ten to twelve thousand dollars in tax. The tax is not on your entire sales price. The truth is the only scenario that would amount to the additional 3.8% tax is when a seller will be paying a capital gains tax and they fall within the income guidelines of the new law.

Looking again at our example above, assuming the home sold for $900,000 and the seller is a married couple, on a $600k profit the additional tax is $3800 – not $27,000 as the current rumor mill might calculate.

The most important thing to keep in mind about the new tax is that it is only imposed on individuals that earn $200,000 or more annually or married couples with a combined income of over $250,000. None of this applies to most people – in fact over 97% of the American public falls below the criteria for this additional tax.

The First Buyer to Make an Offer is Usually the Most Interested Buyer

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We’ve seen it time and again. A seller eagerly lists their home, finds a buyer with a serious offer but chooses to wait things out and see if other (better) offers come along. While it can happen and it does sometimes, the problem is that there is a process usually followed by buyers and along with it a pipeline. Here is a look at how they lead up to making an offer and how by the time the first buyer seriously considers your home they are likely the most viable one.

Buyers Are More Educated

With the advent of technology, the entire real estate industry has changed. Gone are the days when buyers would rely solely on their agent to find a home to suit their needs. Today, the Internet has taken over. In fact, studies show that over 90% of buyers spend weeks online searching for their perfect home before even talking to an agent.

So by the time a buyer is at your doorstep with an offer, there is a good chance they have thoroughly researched every aspect of the local market. They are fully aware of your competition, have weighed all pros and cons of your home and are seriously interested in your property. After countless open houses and obtaining plenty of education about the real estate market in their area, they know when they see a property that suits their needs. In many cases they are waiting for the perfect one to become available so the minute it does, they make an offer.

By the Time They Make an Offer, They Are Well Into the Process

Where sellers go wrong is to want to wait for more offers. In the process, those very serious buyers that have already made their interest in your home known will likely find another home to suit their needs. Buyers today are savvier than ever before – and with that education that they so readily find and absorb from various sources (the Internet, other publications, their peers, professionals) they have an acute knowledge of the market.

In the process of selling your home, it is critical to keep all factors in mind. Factors such as the condition of the market, your agent’s recommendations, current inventory levels, the number of days most properties remain on the market before being sold and of course prices. Putting all of that into play will change how you handle that first buyer but remember – the first buyer will almost always be your best buyer.

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