There has been much talk about a "new national real estate tax."
Many people have the misconception that the federal health care bill includes a 3.8 percent real estate transfer tax on real estate transactions. In response to numerous questions, I will attempt to clearly relay what I know.
This is not specifically a realty transfer fee or property sales tax. It is actually a Medicare tax that will be taken from investment income on upper income taxpayers.
The reality is that most real estate sales throughout the country will not be affected by this tax, because most are primary homes. The capital gains tax on primary homes is forgiven up to $250,000 for individuals and $500,000 for married couples. However, many of our Ocean City homeowners and investors will be affected.
The tax being referred to is on unearned income, in other words: any dividends, interest, net rents and capital gains. A formula will determine what amount of that investment income would be subject to the tax. Only the following people will be affected by this new tax:
- Individuals earning more than $200,000 per year
- Couples earning earning more than 250,000 per year
- The tax only applies on capital gain from a property sale if that gain is more than $250,000 for individuals and more than $500,000 for couples.
Both of these criteria need to be met in order for the 3.8% Medicare tax to be applied.
I suggest you contact your accountant as soon as possible to examine your specific tax liabilities, because there are other parameters.
Educating yourself further may help you decide whether placing your property on the market and closing prior to next year is a smart choice. This Medicare tax will not take effect until Jan. 1, 2013. For more details watch this very specific video from New Jersey Association of Realtors: