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Settling the Question of a Real Estate Tax in Obamacare
Posted By Kathryn Nix On October 22, 2010 @ 3:00 pm In Enterprise and Free Markets,Health Care | 19 Comments
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.
Article printed from The Foundry: Conservative Policy News Blog from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2010/10/22/settling-the-question-of-a-real-estate-tax-in-obamacare/
URLs in this post:
 Image: http://www.foundry.org/wp-content/uploads/empty-pockets.jpg
 adverse effects: http://www.foundry.org/tag/side-effects
 to add to the federal deficit: http://www.heritage.org/Research/Reports/2010/06/Obamacare-Impact-on-Future-Generations
 increases taxes: http://www.heritage.org/Research/Reports/2010/04/Obamacare-Impact-on-Taxpayers
 dump coverage: http://americanactionforum.org/files/LaborMktsHCRAAF5-27-10.pdf
 lose their current health plan: http://www.foundry.org/2010/09/09/side-effects-more-bad-news-for-those-who-like-their-current-coverage
 The Tax Foundation clears the air: http://taxfoundation.org/blog/show/26741.html
 National Federation of Independent Business: http://echo4.bluehornet.com/hostedemail/email.htm?h=b69e89467a3ba4a228525901ca2762cd&CID=11328523341&ch=3551B837E1C8D0E8B3EB5BF03E3E8EEC
 Analysts in Heritage’s Center for Data Analysis write,: http://www.heritage.org/Research/Reports/2010/02/The-Presidents-Health-Proposal-Taxing-Investments-Undermines-Economic-Recovery
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