The Truth about Sales Tax on Homes

There is a viral email circulating claiming the new health care bill contains a 4% “transfer tax” on home sales.  This came out of an inaccurate opinion piece from the Spokane Washington Spokesman-Review newspaper.

The health care bill included a provision that imposes a new 3.8% Medicare tax for some high-income households that have “net investment income”.  Any revenue collected by the tax is dedicated to the Medicare hospital insurance program.

This new tax applies only to households with Adjusted Gross Income (AGI) of more than $200,000 for individuals or $250,000 for married couples.  Since capital gains are included in the definition of net investment income, an additional tax obligation might result from the sale of real property.

Even if the AGI limits are met, the new tax would not be automatically applied to capital gains that result from the sale of a principal residence, since the existing exclusion rule still applies to $250,000 for an individual and $500,000 for a couple.  If the gain from the sale of the principal residence is below that amount then no gain would be realized and NO Medicare tax will have to be paid on the gain.  The new Medicare tax would apply only to a realized gain that pushes the filers AGI over the $200/$250k income limits.

            The new Medicare tax will take effect for tax years ending on or after January 1, 2013.  And this new legislation makes no changes to the mortgage interest deduction. A more detailed discussion is contained in a brochure that can be downloaded at

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Mortgage Interest Deductions


We have heard rumors that the Obama administration has discussed the possibility of getting rid of the Mortgage Interest Deduction (MID).  “Say it ain’t so, Joe”. 

According to the USA Today, the government spent about $80 billion last year to back up the mortgage interest deductions.  One housing specialist says it wasn’t worth the money because the tax break only goes to the wealthy???? Does this sound familiar? 

Home owners already pay 80 to 90 percent of the income tax in our country, and among those who claim the MID, almost two-thirds are middle-income earners. 

The national taxpayers union tells us nearly 39 million people claimed the mortgage deduction. (Nearly 67% of Americans own homes).

For those in the $100,000 – $200,000 income range the MID claimed was almost $14,000; meaning the value of the write-off would be $3,500 

For those making $75,000 – $100,000, the deduction was around $11,000; resulting in a savings of $2,800 

For those making $50,000 – $75,000, the average deductions was around $10,000 with a savings of $2,500.00 

Through the terms of 17 presidencies, the MID has brought remarkable stability to the housing market.

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Taking advantage of today’s low Sacramento interest rates

Ranch style home in North Salinas, California
Image via Wikipedia

In the past 32 years working in the real estate industry, I have not experienced a 4-1/2 % interest rate on a 30-year fixed rate loan.   It is time to give a lot of thought to purchasing a  home in this market. 

Are you concerned that  home values may decline?   

Sure, it is possible but will you ever see 4-1/2% again?   That equates to $450 for every $100,000 in the purchase price of your home.  Can you rent for that monthly payment?  I doubt it.  Lets also not forget the tax benefits of owning your own home and the freedom of making your house a home for you and family.

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