I asked my real estate broker to explain the new health care 3.8-percent tax on profits from the sale of my home, effective Jan. 1, 2013. He put "a good face" on the situation, explaining that TheTax Foundation says the new tax will only impact the top-earning 2 percent of families. Heads up Westport and Weston, that means another tax that disproportionately impacts our towns.
If you haven't been paying attention to this, here is a primer.
Some years ago, home owners were given a "break" on the capital gains from the sale of their principal residences. The first $250,000 of gain if single or $500,000 if filing jointly, were excluded. This restored some balance in the capital gains effect of inflation when you sold your house.
The new health care law basically increases the capital gains tax on the amount over the $250,000/$500,000 exclusion by 3.8 percent. Doesn't sound like much does it ? Well no, particularly if your income jointly is less than $250,000 a year; because then the new tax does not apply.
However, if you bought or built your home in the late '60s through the '80s, it is quite probable that your gain exceeds the exclusion. And if you are still working, it is still more likely that your income exceeds the income limit of $250,000 for married couple filing jointly.
So, if you have been living in your house for a considerable period of time, you want to downsize, and you are still working, there is a high probability that you are one of the families who will pay 3.8 percent more tax. An empty-nester couple who bought their house for $100,000 in 1975 and sell it for $700,000 in 2013 will pay an additional $3,800 over the usual capital gains tax.
That is not chump change. Why did the administration target such a small group of homeowners to fund the cost of the new health care legislation? The tax enabled the government to claim that the new health care law would not increase the deficit. And the target group falls within the parameters of the administration's "fairness" doctrine. Since the government historically overestimates income and underestimates expenses, I doubt that it will recover in taxes the amount it anticipates. However, it is likely that homeowners in Westport and Weston will pay a disproportionate share of this new tax.
Warren P, Joblin