3.8% ObamaTax for Palos Verdes Real Estate?

There are a bunch of emails floating around out there that included within the new ObamaTax-icare System is a 3.8% tax on the sale price of your home.  While we can disagree on the merits of ObamaCare (I for one am strongly against it) we must get the facts right.  It is not true that there is a 3.8% tax on the sale price of your home … HERE ARE THE FACTS … image

Origins: One of the provisions in the reconciliation bill (HR 4872) passed in conjunction with the Patient Protection Affordable Care Act (PPACA) health care legislation calls for high-income households to be subject to a new 3.8% Medicare tax on investment income starting in 2013:

The PPACA creates a new Code Section 1411, which will generally impose a 3.8 percent tax on the lesser of “net investment income” or the excess of modified adjusted gross income over a “threshold amount” (generally, $250,000 for taxpayers filing a joint return, $125,000 for married taxpayers filing a separate return and $200,000 in all other cases). Net investment income generally means the excess of (i) interest, dividends, annuities, royalties, rents, income from passive activities, income from trading financial instruments and commodities, and gain from the disposition of certain non-business property, over (ii) allowable deductions properly allocable to such income. In determining the amount of net investment income, special rules apply with respect to dispositions of equity interests in certain partnerships and S corporations, and to distributions from certain qualified plans. This additional tax applies to taxable years beginning after December 31, 2012.

This is a complicated section of a complicated piece of legislation, and the 3.8% Medicare tax has been frequently misreported as amounting to a 3.8% “sales tax” on all real estate transactions. This is incorrect: the Medicare tax is not a sales tax, nor does it apply to all real estate transactions; it is a tax on investment income (income which may or not derive from the sale of property) only for persons who earn more than the amounts specified in the bill.

imageFirst of all, the Medicare tax will be imposed only on individuals with an income above $200,000 and couples with a joint income more than $250,000, a figure which currently excludes about 97% of all U.S. households. Second, the tax will not be assessed on every house sale, but only on real estate transactions that produce profits over a specified dollar amount. As Sara Orrange, Government affairs director of the Spokane Association of Realtors noted in response to a repetition of the “sales tax” rumor in the Spokane Spokesman-Review:

In his recent guest column regarding the impact of the health care bill, Paul Guppy of the Washington Policy Center claimed that a 3.8 percent tax on all home sales was a part of the recently passed legislation. This is inaccurate and needs to be corrected. The truth about the bill is that if you sell your home for a profit above the capital gains threshold of $250,000 per individual or $500,000 per couple then you would be required to pay the additional 3.8 percent tax on any gain realized over this threshold.  Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made. This tax is aimed at so-called “high earners” — if you do not fall into that category you will not pay any extra taxes upon the sale of your home.


For example, let’s assume that a couple with an income of $325,000 bought a house in 2004 for $300,000 and resold it in 2013 for $850,000, thus producing a $550,000 profit. Since U.S. law allows a couple to exclude from their gross income profits of up to $500,000 from the sale of their principal residence, the taxable gain from this sale would be $50,000 (i.e., a $550,000 profit minus the $500,000 exclusion), and the couple’s taxable income would now be $375,000 (i.e., the original $325,000 plus the $50,000 of taxable profit from their home sale). The 3.8% Medicare tax would now apply to whichever of the following dollar figures is the lesser:

a) The amount by which the couple’s taxable income now exceeds the $250,000 income threshold level.

b) The amount of taxable income gained from the sale of their home.
In case (a), the dollar figure would be the couple’s taxable income ($375,000) minus the income threshold level ($250,000), or $125,000.

In case (b), the dollar figure would be amount of taxable income gained from the sale of their home, which, as detailed above, was $50,000 (i.e., $550,000 profit minus the $500,000 exclusion).

The second dollar amount is the lesser of the two, and therefore the couple would have to pay an additional tax of 3.8 percent of $50,000, which would amount to $1,900. (If the hypothetical couple had realized less than a $500,000 profit on the sale of their residence, none of that gain would be subject to the 3.8% tax.)

The referenced tax is therefore not a tax on all real estate sales; it is an investment income tax which could result in a very small percentage of home sellers paying additional taxes on home sales profits over a designated threshold amount. In short, if you’re a “high earner” and you sell your home at a substantial profit, you might be required to pay an additional 3.8% tax. However, given that only about 3% of U.S. households have incomes that exceed the specified income threshold amount, the existing home sale capital gains exclusion on a principal residence ($250,000 for individuals, $500,000 for couples) still stands, and the national median existing-home price in January 2012 was only $154,700 , the Medicare tax will likely affect only a very small percentage of home sellers when it is implemented in 2013.

 

The 3.8% Tax: Real Estate Scenarios & Examples (National Association of Realtors)

So whether you are going to have a tax liability or not, and please do consult with your accountant to verify all the information above, the fact remains, what’s the single best way to get the highest price for the sale of your home?  The answer is simple – “Marketing 101” as they say, and that’s to have the greatest number of buyers competing for your home.  But, that begs the next question, right?  “How do I do that?!”  It’s all about the internet folks.  Take this example on how I was able to get a record breaking price in a down market for a Palos Verdes home

This article was originally posted here: http://realestatemarbles.com/homeispalosverdes/2012/07/06/palos-verdes-estates-real-estate-question-3-8-obamatax/
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George Fotion
Call Realty Company
(310) 346-6467
gfotion@emailtreo.com

Palos Verdes Real Estate Transaction Report

Palos Verdes Real Estate Transaction Report

Supply & Demand Study for the last 6 months for the South Bay and the Palos Verdes Peninsula

The biggest change is in supply.  Keep in mind, real estate, as in any other commodity, has it’s price determined by the balance or imbalance in supply and demand.  To read the full report and see the changes taking place for the Palos Verdes homes market and the South Bay real estate market, go to the .

 
Homes for sale in Palos Verdes Estates
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George Fotion
Call Realty Company
(310) 346-6467
gfotion@emailtreo.com

Palos Verdes Estates Home Market Trends

palos verdes home sales market report for may 2012

 

 

Palos Verde Real Estate Transaction Report

So how long IS it taking to sell a Palos Verdes home?

Most agents are trained to give you what the “average days on market” are but that really is a misleading statistic.  What you REALLY need to know as a seller is how many days of unsold inventory are there on the market?

Ask the real estate agent you’re planning to interview for the very serious job of selling your home this question, “Assuming no other listings came on the market, how many days would it take the market to absorb existing supplies?”  See if their eyes glaze over … if they do, find another agent … because not only do you want to get an understanding of what you’re up against when planning your next transition from your current home in Palos Verdes, but you also want to know the statistical probability, given what the current absorption number is, for selling in the next 30 days, 60 days, 90 days etc.

For example, did you know that right now, there are 224 days of unsold inventory for Palos Verdes real estate?  That’s a lot of days, but better than the 293 days for the same time period last year.

Given this 224 days of unsold inventory then, here are your chances of selling.  These are calculations based on a standard deviation analysis of the absorption rate

What are my chances of selling in…

30 days 10.30%
60 days 14.30%
90 days 19.30%

So now that you know the realities of the market and if you’re a seller and you absolutely have to have, not a 19.30% chance of selling in 90 days but at least an 80% chance of selling … what do you think has to happen?  Would love to read your comments!

To view the latest suppy/demand trends please go here: Palos Verdes Real Estate Transaction Report

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Homes for sale in Palos Verdes Estates
Homes for sale in Rolling Hills Estates
Homes for sale in Rancho Palos Verdes
Homes for sale in Rolling Hills
South Redondo Beach homes for sale
Hermosa Beach homes for sale
Manhattan Beach homes for sale
South Torrance homes for sale
George Fotion
Call Realty Company
(310) 346-6467
gfotion@emailtreo.com