Is There a Sales Tax When I Sell My Home?

Lately, a number of my clients have asked whether the Patient Protection and Affordable Care Act (the PPACA, or “Obamacare,”) imposes a 3.8% sales tax on the sale of your home.

The answer is: “Kind of.  In a way.  Sort of.  Maybe.”

This tax will be imposed starting in 2013.

Here’s how it works.   According to Michael Maye, who wrote in the October 25, 2010 edition of “The Street,” the Medicare Investment Income tax, contained in the PPACA, is “calculated as the lesser of income over the $200,000 or $250,000 thresholds or unearned income. The lower of these two figures is multiplied by 3.8%. (The definition of "unearned income" is very broad. It includes interest, dividends, capital gains, annuities, royalties and rent. Excluded is tax-exempt interest and income from retirement accounts such as IRAs.)”

The reconciliation bill, HR 4872 (page 33) contains the language for this tax.  It provides for a tax on “net investment income,” which is defined as the sum of “gross income from interest, dividends, annuities, royalties, and rents,” which are not earned in the ordinary course of a trade or business and “net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property.”  It does not apply to property held in a trade or business.

You must look at several factors to determine whether you will owe Medicare Investment Income Tax when you sell your home, or when you have a gain on any investment.  First, the tax is not applied to the total sales price, so you must calculate your net gain.  Second, the tax is applied on the lesser of your income over $200,000 (or $250,000 for joint filers) or the net investment income (which includes your net gain.)  

When calculating your additional tax burden under the PPACA, don’t forget to include the increase in your Medicare Part A Taxes, which rise by.9% for individuals making over $200,000 a year or joint filers earning over $250,000. 

According to Mayes, a  federal income tax scenario for a high-income, two children, family in New Jersey with wages of $1 million; rental income of $36,000; book royalties of $7,500; dividends and interest of $50,000; capital gains of $100,000 (perhaps from the sale of a house); and investment income of $193,500 would result in two new tax payments.  The first would be a Medicare surtax of $6,750 ($750,000 multiplied by 0.9%) and a Medicare Investment Income tax of $7,353 (or $193,500 multiplied by 3.8%.)

Like any tax law, the whole thing is pretty complicated, and miscalculations can be expensive.  So, whether you will be liquidating stocks to pay for college, or selling the vacation home because you’re down-sizing, be sure to talk to your accountant and to the attorneys at Shoffner & Associates first.  Call us at 617-369-0111, or email Freya Shoffner at fashoffner@shoffnerassociates.com.  We can help.

Charities -- What You Need To Know -- Free Webinar

Next Thursday The IRS Will Hold A Free Webinar for Tax Exempt Organizations.

---

Starting Off Right: What 501(c)(3) Organizations Need to Know is a free webinar is a fast-paced overview by two IRS Exempt Organizations tax veterans on what tax-exempts need to do (and what they will want to avoid) to follow IRS rules and keep their tax status in good standing in years to come. This 45-minute session will be held Nov. 18 at 2 p.m. EST. If you are a newly formed 501(c)(3) organization or an organization that wants a refresher, register today and start off right.  

Debt Free... Can It Be?

How long will it take to eliminate your debt?  Use this Debt Reduction Calculator to find out. Then get in touch with Freya Shoffner and the attorneys at Shoffner & Associates to ensure your financial success.

Now The IRS Offers A Form to Help Small Businesses Claim The New Health Care Tax Credit

Let's face it.  Every small business is going to be facing an ever-increasing mound of paperwork from the IRS.  Right now, staying on top of all of the health care requirements is pretty tricky.  One helpful item is the IRS' newly  released a draft version of the form (Form 8941) that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations –– which do not generally file income tax returns –– will claim the credit during the 2011 filing season.

 Take a look at the forms now so that you'll be ready to take the best advantage of that tax credit when the time comes.  And, as always, give Shoffner & Associates a call at 617-369-0111 or drop us a line law@shoffnerassociates.com if you have any questions.

Decipher Notices From The IRS

Finding a letter in your mailbox from the IRS is always scary.  What's worse is trying to figure out the notice inside.  Finally, the IRS has set up a page that explains how to understand their notices. Just visit the IRS online.

And, if you need help dealing with any tax issues -- or if you'd like to find out how to avoid tax issues -- just let any one of us at Shoffner & Associates know.  We're here to help.

Save Your Small Non-Profit's Tax Exempt Status!

One of the challenges facing over-worked small non-profit organizations is meeting the yearly tax filing burden.  Let's face it -- sometimes it just doesn't happen.

If your non-profit didn't manage to file its 2007, 2008, or 2009 returns, don't despair.  The IRS has established a special one-time special filing deadline of October 15, 2010.  Follow this link to find out more.

http://www.irs.gov/newsroom/article/0,,id=225959,00.html

Changes In Medicare

In the next few days Medicare recipients should be receiving the new brochure " Medicare and the New Health Law - What it Means for You."  The brochure explains the most important parts of the Affordable Care Act" for those who are receiving Medicare as well as their families. The brochure is also available online at http://www.medicare.gov/Publications/Search/Results.asp?PubID=11467&Type=PubID

For those recipients who enter the Part D "donut hole" and who are not eligible for Medicare Extra Help, their first benefit from the new law will be a $250.00 check. And, next year Medicare beneficiaries will find that their colorectal cancer screenings and mammograms are covered by Medicare, in addition to an annual wellness visit.

Remember, that Medicare is only part of a complete longterm care strategy.  Attorney Freya Shoffner and the associates at Shoffner & Associates will be happy to help you decide exactly how you'll make a strategic plan for the best future possible.  Write to us -- or call us at 617-369-0111 -- anytime.