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Transaction Tax on Home Sales

Obama Health Care Reform Imposes Transaction Tax on Some Home Sales

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Home For Sale

President Barack Obama's 2010 health care reform law imposes a 3.8 transaction tax on some home sales.

Scott Olson / Getty Images
Updated September 29, 2011

President Barack Obama's health care overhaul of 2010 imposes a new transaction tax on home sales, as many widely circulated emails claim. But the impact of the levy is much more narrow than critics suggest.

The 3.8 percent transaction tax on home sales is buried in the The Patient Protection and Affordable Care Act and would apply only to Americans who report incomes of more than $200,000 a year, or married couples filing jointly who make $250,000.

Even then, though, the transaction tax on home sales applies only to profits above the capital gains threshold of $250,000 per individual or $500,000 per couple.

And if it's the seller's "main home," owned and lived in by them for two out of five years, they're exempt from the transaction tax anyway.

Transaction Tax Myths

Some persistent Obama critics never let the facts get in the way of a good myth, however.

Several widely circulated emails claim the president's health care overhaul imposes a 3.8 percent tax on every home sale, a claim that is flat-out wrong. Here's the text of one of those emails:

This should help stimulate the Real Estate market!

UNDER THE NEW HEALTH CARE BILL - DID YOU KNOW THAT ALL REAL ESTATE TRANSACTIONS ARE SUBJECT TO A 3.8% "SALES TAX"?

YOU CAN THANK NANCY, HARRY & BARACK (AND YOUR LOCAL CONGRESSMAN) FOR THIS ONE.

IF YOU SELL YOUR $400,000 HOME, THIS WILL BE A $15,200 TAX.

Verified

Higher taxes on real estate investments. The 3.8% Medicare surtax would hit average, middle-class investors in real estate. A middle-class taxpayer who happens to sell real estate for a gain in a particular year would be liable for this new tax, regardless of how low her income might be in other, more typical years.

Here's another version of the same claim:

Under the new health care bill all real estate transactions will be subject to a 3.8% Sales Tax. The bulk of these new taxes don't kick in until 2013 (presumably after Obama's re-election).

You can thank Nancy, Harry and Barack and your local Democrat Congressman for this one.

If you sell your $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes. Is this "Hope & Change" great or what?

We can vote the bums out in November and demand that they eliminate the bill or at the very least defund it. Then in 2012 repeal it.

The Truth About the Transaction Tax

The transaction tax on home sales is detailed in the Health Care and Education Reconciliation Act of 2010', which amended the The Patient Protection and Affordable Care Act.

The legislation applies a 3.8 percent tax to the "net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business."

The law makes it clear that the transaction tax on homes applies only to Americans who report incomes of more than $200,000 a year, or married couples filing jointly who make $250,000, and those who make a substantial profit.

The bottom line is: If you sell your $400,000 home, you won't be paying a transaction tax of $15,200.

It is not a "sales tax" on every seller.

That Other Transaction Tax Myth

The home-sale transaction tax myth is similar to, but different from, claims that Obama intended to impose a 1 percent tax on bank deposits, withdrawals and purchases at the grocery store.

In that claim, critics alleged: "His plan is to sneak it in after the November election to keep it under the radar. This is a 1% tax on all transaction at any financial institution i.e. Banks, Credit Unions, extra."

In fact, the transaction tax legislation was proposed by a Democratic congressman from Pennsylvania, U.S. Rep. Chaka Fattah, in 2004, 2005, 2007 and 2010. It never got the backing of Obama, though.

So the critics are wrong on this transaction tax, too.

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