I come across a lot of misinformation regarding tax obligations associated with the sale of a home. Here’s one I’d like to knock down and correct, the so-called Medicare sales tax of 3.8 percent on all real estate transactions. This is an excellent example of how a fairly complicated rule gets misinterpreted, mostly maliciously, to make the Affordable Care Act look bad.
The truth is that the Medicare tax provisions are aimed at only the top three percent of the population. The amount of tax isn't on the sale price of the home, only the amount above specified thresholds. The so-called “sales tax” is actually a tax on investment income (which may or may not result from the sale of a home) that applies to individuals with income of at least $200,000 ($250,000 for couples filing jointly). This excludes 97 percent of the US population. The investment income tax will be assessed only on the amount of real estate transactions profits above a $250,000 threshold ($500,000 for couples). So. High-income couples who realize a $499,999 profit on their home sale, the Medicare tax is exactly 0.0 percent. And if your income is below $200,000, you could receive a few million dollars in profit and not owe a dime in this Medicare tax.
How did this spurious rumor get started anyway? Fingers point to a guest column in the Spokane Spokesman-Review written by Paul Guppy of the Washington Policy Center (WPC). Guppy left out all of the income and profit threshold information, making it seem that everyone would pay 3.8 percent on every home sale. So how did Guppy get it so wrong? Maybe it’s the people he hangs out with. You see, the WPC is a member of the American Legislative Exchange Council, the infamous ALEC known for its ultra-right-wing legislative efforts. ALEX funnels money to legislators and lobbyists to support the model bills they craft and push, such as the “Shoot to Kill” law that resulted in the killing of Travon Martin, as well as vaginal probe ultrasound laws that force women seeking legal abortions to undergo a state-inflicted rape. ALEC is also behind the laws seeking to disenfranchise minority, student and senior voters. ALEC is so venal that large corporations like Coca-Cola and Pepsi have dropped their memberships. Many more are likely to follow.
The bottom line: when you hear about some terrible-sounding thing about to happen to you at the hands of President Obama, it’s almost certainly not true. Rather a maliciously planted rumor to gin up hate and anger among the least educated of our population.