ObamaCare's Tax On The Sale of YOUR home.
Last week, the U.S. Supreme Court affirmed the Affordable Care Act as
valid law. One of the funding mechanisms of the Act is a 3.8 percent
tax on investment income for individuals with adjusted gross income
At first blush, this sounds as if this tax will only affect the wealthy. Why would anyone object?
Here’s the problem: how do you define “investment income?” Without
specificity in the statute, the Internal Revenue Service will determine
what is “investment income” for the purposes of the Act via
regulations. (There’s a scary thought.) While the IRS has yet to issue
either temporary or permanent regulations on the subject, many believe
the IRS will include a number of items that are generally not thought of
as “investment income.”
The two biggies are the sale of your primary residence and the sale
of a vacation home. Neither of these does the average individual think
of as an investment. But, the likelihood is that they will be
considered an investment and subject to the tax.
Consider an elderly widow who lives in San Jose,
California. Let’s say her husband – a firefighter – passed away 25
years ago. She receives her husband’s pension of $35,000 per year and
Social Security income of $25,000 per year.
Due to her declining health, she sells her modest San Jose home for
net proceeds of $500,000. At her husband’s death, the basis of her home
was adjusted to $100,000. She has a capital gain of $400,000. Of
this, minus the exclusion of $250,000, the taxable portion of the gain
is $150,000. She also sells the family cabin for net proceeds of
$100,000. At her husband’s death, the basis of the cabin was adjusted
to $30,000. She has a capital gain of $70,000. None of the gain is
excluded and the entire $70,000 is subject to tax.
In this scenario, the widow – who most would consider middle class –
would have an adjusted gross income of about $280,000 and thus would be
subject to the surtax imposed by the Act.
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