Wednesday, August 8, 2012

The Non-Existent 3.8% Sales Tax on All Real Estate Transactions and What to do About It



Have you seen this email?


"Under the new health care bill — did you know that all real estate transactions will be subject to a 3.8% Sales Tax? The bulk of these new taxes don’t kick in until 2013 (presumably after Obama’s re-election). You can thank Nancy, Harry and Barack and your local Democrat Congressman for this one. If you sell your $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes. Is this Hope & Change great or what? …

"Oh, you weren’t aware this was in the Obamacare bill? Guess what, you aren’t alone. There are more than a few members of Congress that aren’t aware of it either (result of clandestine midnight voting for huge bills they’ve never read). AND, there are a few other surprises lurking."

The above claim is not true. All real estate transactions will NOT be subject to a 3.8% sales tax in 2013. None will, to be precise.

What a very few real estate transactions will be subject to is a small increase in a capital gains tax, which by all rights, is still way too low (if fairness matters.) The low capital gains tax rate is the loophole that allows a fellow such as Mitt Romney to pay a 14% income tax rate, by the way. We all know that poor Mr. Romney needs that low rate or he won’t help create jobs!
Here is a portion of the actual law in question:

‘‘CHAPTER 2A—UNEARNED INCOME MEDICARE

CONTRIBUTION

‘‘Sec. 1411. Imposition of tax.

‘‘SEC. 1411. IMPOSITION OF TAX.

‘‘(a) IN GENERAL.—Except as provided in subsection (e)—

‘‘(1) APPLICATION TO INDIVIDUALS.—In the case of an individual,

there is hereby imposed (in addition to any other tax

imposed by this subtitle) for each taxable year a tax equal

to 3.8 percent of the lesser of—

‘‘(A) net investment income for such taxable year, or

‘‘(B) the excess (if any) of—

‘‘(i) the modified adjusted gross income for such

taxable year, over

‘‘(ii) the threshold amount.

‘‘(2) APPLICATION TO ESTATES AND TRUSTS.—In the case

of an estate or trust, there is hereby imposed (in addition

to any other tax imposed by this subtitle) for each taxable

year a tax of 3.8 percent of the lesser of—

‘‘(A) the undistributed net investment income for such

taxable year, or

‘‘(B) the excess (if any) of—

‘‘(i) the adjusted gross income (as defined in section

67(e)) for such taxable year, over

‘‘(ii) the dollar amount at which the highest tax

bracket in section 1(e) begins for such taxable year.

‘‘(b) THRESHOLD AMOUNT.—For purposes of this chapter, the

term ‘threshold amount’ means—

‘‘(1) in the case of a taxpayer making a joint return under

section 6013 or a surviving spouse (as defined in section 2(a)),

$250,000,

‘‘(2) in the case of a married taxpayer (as defined in section

7703) filing a separate return, 1⁄2 of the dollar amount determined

under paragraph (1), and

‘‘(3) in any other case, $200,000.

‘‘(c) NET INVESTMENT INCOME.—For purposes of this chapter—

‘‘(1) IN GENERAL.—The term ‘net investment income’ means

the excess (if any) of—

‘‘(A) the sum of—

‘‘(i) gross income from interest, dividends, annuities,

royalties, and rents, other than such income

which is derived in the ordinary course of a trade

or business not described in paragraph (2),

‘‘(ii) other gross income derived from a trade or

business described in paragraph (2), and

‘‘(iii) net gain (to the extent taken into account

in computing taxable income) attributable to the disposition

of property other than property held in a trade

or business not described in paragraph (2), over

‘‘(B) the deductions allowed by this subtitle which are

properly allocable to such gross income or net gain.

http://www.healthcare.gov/law/resources/authorities/section/1402-unearned-income-medicare-contribution.pdf

In other words, if there is a capital gain on the sale of an investment, over the deductions properly allocable to such gross income AND the person meets the income requirements in the law (over $200,000), then a tax of 3.8% on the profits may apply.

Since it is possible I could be selling my home in 2013, the original email, which I received from a real estate professional, concerned me. I quickly discovered the email was full of lies and distortions – it was not difficult task to find this out. I will be paying no such tax; neither will 99% of my fellow home sellers since only 3% of Americans earn enough to qualify and a small minority of those sellers will have a large enough profit, if they have a profit.

What now concerns me is the irresponsibility of so many who pass along anonymously authored emails that are pretty much blatant lies, in order to influence an election. They spend the time to spam others with misinformation, but are too busy to check it out first. When I emailed back the person who sent me this email with the corrected info, including links and an explanation, instead of being thankful and eager to make things right, they were mad and accused me of denying them their 1st Amendment rights!

Yes, pointing out errors is now a violation of the 1st Amendment. Spreading lies is not.

And this brings me to the root of all evils, according to me at least; ideology. When one believes in a dogma, one is immune to fact. That is the whole point of dogmatic belief systems – making an ideology so sacred so that belief in the dogma itself is the virtue, not accuracy, truth or honesty. The ideology could be religious or secular or some combination. Examples of dogmatic ideologies include fascism, communism, socialism, conservatism, liberalism, Republicanism, Democratism, Christianity, Judaism, Islam, and being a Cubs fan.

All have this in common – they are in conflict with a free exchange and consideration of ideas.

Humanism, if it is to have value, cannot be dogmatic – it cannot be a list of things that must be believed. Humanism, as opposed to all dogmas, must always be in concert with the well being of persons, and adjust as new information is received, and most importantly, judge ethical norms on the basis of the consequences of putting those ethics into practice. In other words, lying about the new health care law is wrong and betrays either the dogmatic nature of the liars or a dangerous moral laziness.  If we value our freedom, and that's a big if, we must do better.
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