There’s been a lot of confusion lately as everyone’s been hearing about the new 3.8% real estate tax that went into effect January 1st. (And if you haven’t yet heard about it, surprise! 😉 Many people have been asking what this means, and if it will affect them. Well, to address the number one issue of misinformation out there – this is not a sales tax.
The tax will also not be applicable to the full sale price of the home, nor will it affect every home sale. Rather, to figure the amount subject to this tax, or if you’re even subject to it at all, calculate the amount of profit on the sale of your home. You are allotted a tax-free profit of up to $250,000 for singles or $500,000 if married and filing jointly, so if you sell at a loss, you’re already exempt from the 3.8% tax. If your total profit was less than that $250,000/$500,000 mark, you too are exempt. If however, you are one of the few making a profit over that $250,000/$500,000 marker, you take only the amount over and add that to your AGI. If that amount plus your AGI totals less than $200,000 (or $250,000 if married, filing jointly), you are exempt. If this amount pushes you over those amounts, the tax would apply to whichever of these two options is less:
- Your profit over the tax-free limit of $250,000 ($500,000 if married.)
- The amount your AGI exceeds $200,000 ($250,000 if married.)
This all sounds immensely confusing. (But what tax-related information isn’t 😉 For a more in-depth look at the tax with an excellent real world example to follow, take a look at this article from MSN. Plus, for additional information about the 3.8% tax, visit this article from the Scottsdale Area Association of Realtors.
And, as always, if after reading these articles, you still have questions or concerns about how this affects you, please contact me and I will gladly help answer your questions.