Got Real Estate?You are the lucky winner of a new ObamaCare real estate tax!
You very likely know that the real estate and associate residential construction sectors are very depressed. So deeply depressed that the Obama Administration has spent money we do not have (deficit spending) and sponsored the never ending bail outs of Fannie and Freddie (money we do not have) to bolster these two sectors.
Economics 666: what we do is take an unrelated sector and create a tax that then negatively impacts another sector that you are simultaneously attempting to stimulate. Yes, we promote real estate on one side of the balance sheet yet demote real estate on the other side of the balance sheet.
No way! Way!
Dr. Dolittle economics: Pushmi-Pullya.
ObamaCare, your newest best friend, has a 3.8% tax on real estate sales embedded in the section 1411, "Imposition of Tax", in H.R. 4872, the Health Care and Education Reconciliation Act of 2010. (1) (2) (3)
Wait a darn minute! Capital gains on home sales, within limits, are exempt from tax. That is correct. However, ObamaCare merely added an additional tax beyond the capital gains limited exemption.
There are certain income and capital gains formulas for the newly imposed tax regarding principle residence sales that may or may not mitigate the tax. But if you own investment property or a seasonal home, no such formulas exist and prepare to pay the full 3.8% tax on the gain in value upon the sale of such property. The tax goes into effect in 2013.
By the way, the tax/income formula is not indexed for inflation hence as your income rises due to inflation, the formula for principle residences tax begins to encompass more and more people until theoretically we all pay more and more of the tax or, alternatively, your exemption from tax grows smaller and smaller.
Taxes and Time Horizons
When you first impose a tax or increase an existing tax on a good or service, generally speaking, the rule is: you will get less of that item. Further, with the tax imposed for an unlimited time as well as not indexed for inflation, the tax time horizon is such that behavior regarding real estate purchases and potential subsequent sales will be changed in the long term. Primary residential real estate, seasonal homes, and investment real estate will be negatively impacted.
Summary
The Obama Administration is attempting to stimulate the residential real estate and associated residential construction sectors through multiple policies while simultaneously depressing the long term real estate purchase/sales behavior by imposing a tax associated with ObamaCare which is associated with a completely different sector i.e. health-care.
UPDATE 10/22/2010:
Please try this link for additional information:
Settling the Question of a Real Estate Tax in Obamacare
http://blog.heritage.org/2010/10/22/settling-the-question-of-a-real-estate-tax-in-obamacare/
UPDATE 2: 10/03/2012:
Property Owners Face a New Surtax - WSJ
http://online.wsj.com/article/SB10000872396390444813104578016670323951186.html#mod=djempersonal
Notes:
(1)http://republicans.waysandmeans.house.gov/News/DocumentSingle.aspx?DocumentID=177350
(2)http://www.spokesman.com/stories/2010/mar/28/health-laws-heavy-impact/
(3)http://www.opencongress.org/house_reconciliation
Can you please provide a few numeric examples, for sales below, at and above the exemptions.
ReplyDeleteBesides that, I'll point out that RE does not deserve special treatment, and then point out that this just adds another twist to the spaghetti-bowl of tax BS that keeps the CPA industry stimulated.