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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

The 3.8% Sales Tax on Home Sales

Sep 29, 2010

I have received multiple e-mails in the last month or so about the Obama 3.8% sales tax on the sale of your home starting in 2013. 

There is no federal sales tax on any home sale in today's tax law.

However, there is a provision in the Health Care Act passed earlier in the year that will assess an extra 3.8% surtax on investment income starting in 2013 including capital gains.  This surtax applies if a farmers adjusted gross income is greater than $200,000 or $250,000 if married.  This is an extra income tax on capital gains, not a sales tax.

Let's compare the effect of this tax compared to a sales tax.

Let's assume a farmer has a house that they have owned for many years.  They paid $50,000 for it 30 years ago and it is now worth $500,000.  Under current income tax law, the gain on sale of this house is completely tax free.  A sales tax of 3.8%, if it applied, would cost the farmer $19,000.

Now lets assume the house is not the farmer's personal residence and they sell it for a $450,000 gain in 2013 and their other income is over $250,000.   In this case, their capital gain of $450,000 would be subject to an additional surtax of 3.8% or $17,100 which would almost be equal to a sales tax but not quite. 

The only time the surtax is equal to a sales tax is if the cost basis is exactly zero.

One other Internet based e-mail that I have seen several times is that we are now required to report our health insurance premiums paid for our benefit on our W-2 at year-end as taxable income.  The e-mail will site the health care act as the requirement, however, they mis-intepret the actual wording of the law.  What is actually required is that the premiums do need to be reported on form W-2, however, not as income.  It will be reported in a separate box similar to other reporting that is already being done on the W-2 for other non-taxable items.

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