The 3.8% Sales Tax on Home Sales

Published on: 09:32AM 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.