3.8% Tax of the Health Care Reform Act

Yes, a tax. But not a sales tax.

Heather Eliasare

Last week, I wrote a post here about the 3.8% tax that is part of the Health Care Reform Act, which passed in 2010. There have been numerous emails circulating that mischaracterized how the tax worked, and here at NAR we wanted to help people understand it better.  The post created a flurry of comments, and I thought we would address some of the points raised directly. (I'm taking some of my clarification points directly from The Top 10 Things You Need to Know about the 3.8% Tax.)

• Yes, it is a tax. But it's not a sales tax, it's a tax on investment income.
•  No, NAR does not support this tax. It was added  into the health care law at the last minute and was never considered in hearings.The tax will no doubt be debated during the upcoming tax reform debates in 2013.
• When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.
• For the tax to apply to any profit or gain on a primary home sale, the profit/gain  must be more than the $250,000-$500,000 capital gains exclusion that’s in effect today. That’s gain, not sales price.
• The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).
• If you are concerned that this tax may apply to you, please consult your tax advisor.
• NAR is nonpartisan and does not get involved in presidential politics.

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