3.8% Tax: What's True, What's Not Rumors about the 3.8% Medicare tax continue to circulate.

Here's the definitive word on what's true and what's not on how the tax impacts real estate. September 2012 | By Robert Freedman Ever since health care reform was enacted into law more than two years ago, rumo rs have been circulating on the Internet and in e-mails that the law contains a 3.8 percent tax on real estate. NAR quickly released material to show that the t ax doesn't target real estate and will in fact affect very few home sales, because it's a tax that will only affect high-income households that realize a substantia l gain on an asset sale, including on a home sale, once other factors are taken into account. Maybe 2-3 percent of home sellers will be affected. Nevertheless, the rumors persist and the latest version that's circulating falsely say NAR is advocating for the tax's repeal. But while NAR doesn't support the tax ( it was added into the health care law at the last minute and never considered in hearings), it's not advocating for its repeal at this time. The characterization of the 3.8 percent tax as a tax on real estate is an exampl e of an Internet rumor, says Heather Elias, NAR's director of social business medi a. Elias and Linda Goold, NAR's director of tax policy, sat down for a discussion of how the tax works and how Internet rumors work and you can find their remarks in a 6-minute video.

Goold says the tax will affect few home sellers because so many different pieces must fall into place a certain way for the tax to apply. First, any home sale g ain must be more than the $250,000-$500,000 capital gains exclusion that's in effe ct today. That's gain, not sales amount, so you really have to reap a substantial amount for the tax to even come into play. Very few people are walking away with a gain of more than half a million dollars today, even in the high-end home mar ket, so right off the bat only a few home sellers would be a candidate for the t ax. For the few households that do see a gain of more than the $250,000-$500,000 exc lusion (that's $250,000 for single filers and $500,000 for joint filers), only the amount above the exclusion would be factored into the tax calculation, and that would still only apply to high-income households, which the law defines as sing le people earning $200,000 a year and joint filers earning $250,000 a year. So, if you are a households with annual income of $250,000 or more and you earn a gain of more than $500,000 on your house (again, that's after the $500,000 exclu sion), any amount of gain above the exclusion would be plugged into a formula to see if it's taxable. If it turns out that it's taxable, then the amount could be su bject to the 3.8 percent tax. If the household had a gain of more than $500,000 but only earned $249,000 a year in income, the tax wouldn't apply. (Note that these are just hypothetical examples. To know if a case would really be subject to the tax, a professional tax preparer or tax attorney has to look a t all the particulars of the tax filer's case. Only a tax professional is in a pos ition to say the tax is applicable, but the examples cited here could help you g et a sense of how the tax works.) The other thing about the tax worth noting is that, although it takes effect in 2013, any impact on taxes wouldn't happen until 2014. That's because the tax filer w ould do the calculation in 2014 for the 2013 tax year. Because it's not a tax on a real estate sale but rather on a capital gain, it's not calculated at the time of an asset sale, whether that asset is a house or something else. It's calculated a t the time the filer figures his or her tax.

This is all explained clearly in the video, so if you have questions about how t he tax works, or if you're still hearing rumors about the tax and you're not certain of the accuracy of what you're hearing, the video should prove helpful.