• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Settling the Question of a Real Estate Tax in Obamacare

    By now, Americans have become well acquainted with the fact that the Patient Protection and Affordable Care Act (PPACA) will have a multitude of adverse effects. The new law is certain to add to the federal deficit. It increases taxes on all Americans in a number of different ways, encourages employers to dump coverage, and will cause many to lose their current health plan. However, a circulating claim that the PPACA includes a tax on real estate sales has misinformed the American public.

    There is not a new specific tax on all real estate transactions in the PPACA. But that’s not the end of the story. There is a surtax on real estate transactions that are already taxed under current law. Capital gains in excess of $500,000 from the sale of primary residences already face the capital gains tax. The new tax in the PPACA will raise the rate on these gains.

    The Tax Foundation clears the air by explaining how the new tax will work:

    The bill would impose essentially a capital gains taxes on some home sales made by a limited number of taxpayers. (The health care law contains a new 3.8 percent tax on “unearned income” for high-income taxpayers. Unearned income includes capital gains.) To be hit by the 3.8 percent capital gains tax, you first have to be a married couple making more than $250,000 in adjusted gross income or $200,000 if you are single. The capital gain on the home sale must also exceed $500,000 if this is a primary home and you are a married couple ($250,000 for singles).

    Here’s an example of how the tax would work: Say a couple makes $260,000. They purchase a primary residence at $400,000 and sell it for $1,000,000. This would amount to a capital gain from the sale of their home of $600,000. Capital gains tax plus the new Medicare tax would apply to profits over and above the threshold of $500,000. In this case, the couple’s capital gain of $600,000 exceeds the threshold by $100,000. The couple would pay the capital gains tax, which rises to 20 percent in 2011 under President Obama’s tax hike plan, plus the new 3.8 percent tax for a total tax rate of 23.8 percent on that $100,000. Their tax bill in this scenario is $23,800. The PPACA adds $3,800 to the couple’s final tally in this example.

    The new Medicare investment tax provides a disincentive for business expansion. The National Federation of Independent Business (NFIB) reports, “The $250,000/$500,000 thresholds only apply to the sale of a primary residence, so the tax will hit other property sales harder.”

    NFIB also points out that this tax “marks the first time that non-wage income is designated to fund Medicare.” Beyond its marginal effects on real estate sales, the new application of the Medicare tax to investment income will have substantial effects on the economy at large. Analysts in Heritage’s Center for Data Analysis write, “Raising the tax burden on investment income further damages the economy and ultimately affects all members of society.” Their findings show that this tax will result in lost job opportunities, a reduction in productivity, losses in gross domestic product, and reductions in household income.

    So is there a sales tax on real estate included in the health care law? In some cases, yes. But will the same provision that taxes some profits from real estate cause widespread damage to the economy? Absolutely.

    This post was co-authored by Derek Pyburn.

    Posted in Obamacare [slideshow_deploy]

    19 Responses to Settling the Question of a Real Estate Tax in Obamacare

    1. Pingback: 21 State Lawsuit » Blog Archive » The Real Estate Tax and health reform?

    2. John Kirkman says:

      Heritage Foundation = "Let them eat cake " answer to helping the poor at the expense of the rich.

      This is Republican Fodder for the greedy, and my income this year will put me in the zone where I will pay the "penalty" tax. (And I can afford to pay it.)

      War is not the answer, no matter what the Repugnuts say.

      • littlemike says:

        If you had any credibility at all going into this, you blew it out the window by using the juvenile epithet "Repugnuts." SMDH. Pffft!

      • Dacynic says:

        How much have you donated to the State and Federal Government because you can afford it, you JERK?

    3. Jon Doyle, San Diego says:

      I have a good friend who is a senior exec in a Fortune 500 company. He made the comment not unlike the way your article portrays the new tax – as one who must make financial moves now to protect himself against the pending doom brought on by Obamacare. I had never heard of this tax, so I didn't question him at the time, but I was very suspect about the validity of his statement because it seemed so outrageous that it couldn't be true without there being rampant furor over it's audacity. Remember, this is an intelligent guy. Well, I don't think so anymore.

      So, I'm not surprised to read that you give inaccurate and exaggerated tax figures above. In your scenario, the 3.8% tax only applies to the $10,000 of AGI over $250,000., or a total of $380. That's because you conveniently left out half the new rule that states the tax is applicable to the LESSER of the AGI over the threshold, or applicable Net Investment income ($100,000 in this case). See this quote from Realtor.org who are experts in these matters for obvious reasons:

      "The tax is NOT imposed on the total AGI, nor is it imposed solely on the investment income. Rather, the taxable amount will depend on the operation of a formula. The taxpayer will determine the LESSER of (1) net investment income OR (2) the excess of AGI over the $200,000/$250,000 AGI thresholds."

      So for your scenario above, this couple earned $860,000 in the year in question, and the new tax will amount to $380. Is this really something you want your constituents to be complaining about?

      Truth trumps Fear every time. Please stop the fear mongering, it's not helping anyone, and on top of that, makes seemingly intelligent people appear idiotic.

    4. Pingback: 15 Reasons to Repeal Obamacare - Hanas on Health

    5. Frankiev says:

      Tax upon tax upon tax ……..

    6. Jim says:

      All I know is that it confuses the hell out of me and none of you guys are making it easier to understand. So…….I have to hire a "professional" and pay him twice what I might or might not save/taxed, whatever. It is WRONG that ALL this garbage with Obummer-care, not to mention the whole damn tax system, is further confusing the general American public to extremes of frustration!!! Viva la Revolution!!!

    7. walter from waco says:

      'NFIB also points out that this tax “marks the first time that non-wage income is designated to fund Medicare.” '

      The Camel's nose is now under the tent.

    8. ms_woods says:

      The capital gains tax is IMO a BS tax that amounts to a type of double taxation.

    9. This question will be answered by the IRS when it is implemented. It makes little difference what the experts have to say about this today, the IRS will have the final say. Congress is addicted to enacting laws that are interpreted and implemented by bureaucrasies, and the IRS is the most powerful bureaucrasy extant. I suspect everyone will be shocked at the result if Soetoro-Obama remains in power.

      • R Kelly says:

        YES – Wm O'Brien – That is the real truth in this, and every human situation where the government is involved. We vote for representatives, form a government and expect these representatives yo enact laws that will improve the quality of life. But the laws passed mean nothing. The executive branch has created bureaucracies that write law everyday via regulations and interpretation without over site of any kind. All things ate possible. The courts are useless. A great design failure on the part of the founding fathers. Of such are Dictators made. Are we there now with Obama? I suggest that we are.

    10. Mike says:

      What's this I hear about Obama hiring 16,000 new IRS agents to make sure people comply with Obamacare?

    11. @carcarzoom says:

      It makes no sense to me to take more money from the wealthier people….especially a tax involving real estate transactions in a health care bill! It's insane and defies good common sense. The upper income people already pay over 65% of the federal tax bill…………how much is enough?

    12. @carcarzoom says:

      Obamacare only ADDS to an extremely complicated tax code that needs to be eliminated instead of added to! Get rid of Obama!!!!!!!!!! Please people….wise up and realize that bigger and bigger Government will always want more and more of our money to spend. It will be spent frivilously and wastefully…it's better kept in the hands of the person or organization that earned the damn money.

    13. Fritz says:

      We are going to have to hire specialist in "Healthcare" law/accounting to figure this out. Lets stop the madness now!

    14. Briney says:

      Winning an election doesn"t change the laws of supply and demand. Obama"s victory doesn't make Adam Smith obsolete. Russia went down this road to nowhere for 70 years and look at them now. No government can tax and spend itself out of a depression. It takes production to make wealth, jobs, a solid economy and a real tax base.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.