Here is one of the most insidious and widespread myths about the application of the Affordable Care Act. In presenting about the law in remote areas, I've found that people who had heard nothing about any of the benefits of the ACA had heard this: if you sell your house you'll have to pay 3.8% in new taxes on the amount of the sale.
Here's what is wrong with this:
Sec. 1411 is below. It does impose a 3.8% tax generally on unearned income, a progressive feature of the law.
And the 3.8% tax does apply to the sale of certain property.
But all of the following must be true for the tax to apply to proceeds from the sale of your home:
1. Your annual income must be $200,000 or greater if you file taxes as a single person, or $250,000 if you file as a couple. This excludes about 98% of Americans right there.
AND
2. The net gain from the sale of your home must be declarable as taxable income.
Now if you've sold a residence in the last 20 years you know that Congress is constantly finding ways to exclude home sale gains from taxable income. Right now you usually pay no tax on the sale for a variety of reasons. These change from time to time but right now include these conditions at least:
a. The first $250,000 in profit on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already.
or
b. If you buy another home, you pay no tax.
Remember, you can make a million in taxable gains on the sale of your home and the new 3.8% tax will not apply unless you're also declaring taxable earnings over $200,000 a year.
You can find all this out in summary at FactCheck.org: http://www.factcheck.org/2010/04/a-38-percent-sales-tax-on-your-home/
But I think you're better armed by knowing where to look in the law so here you are:
‘‘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.
‘‘(2) TRADES AND BUSINESSES TO WHICH TAX APPLIES.—A
trade or business is described in this paragraph if such trade
or business is—
‘‘(A) a passive activity (within the meaning of section
469) with respect to the taxpayer, or
‘‘(B) a trade or business of trading in financial instruments
or commodities (as defined in section 475(e)(2)).
‘‘(3) INCOME ON INVESTMENT OF WORKING CAPITAL SUBJECT
TO TAX.—A rule similar to the rule of section 469(e)(1)(B) shall
apply for purposes of this subsection.
‘‘(4) EXCEPTION FOR CERTAIN ACTIVE INTERESTS IN PARTNERSHIPS
AND S CORPORATIONS.—In the case of a disposition of
an interest in a partnership or S corporation—
‘‘(A) gain from such disposition shall be taken into account
under clause (iii) of paragraph (1)(A) only to the extent
of the net gain which would be so taken into account
by the transferor if all property of the partnership or S
corporation were sold for fair market value immediately
before the disposition of such interest, and
‘‘(B) a rule similar to the rule of subparagraph (A)
shall apply to a loss from such disposition.
‘‘(5) EXCEPTION FOR DISTRIBUTIONS FROM QUALIFIED
PLANS.—The term ‘net investment income’ shall not include
any distribution from a plan or arrangement described in section
401(a), 403(a), 403(b), 408, 408A, or 457(b).
‘‘(6) SPECIAL RULE.—Net investment income shall not include
any item taken into account in determining self-employment
income for such taxable year on which a tax is imposed
by section 1401(b).
‘‘(d) MODIFIED ADJUSTED GROSS INCOME.—For purposes of this
chapter, the term ‘modified adjusted gross income’ means adjusted
gross income increased by the excess of—
‘‘(1) the amount excluded from gross income under section
911(a)(1), over
‘‘(2) the amount of any deductions (taken into account in
computing adjusted gross income) or exclusions disallowed
under section 911(d)(6) with respect to the amounts described
in paragraph (1).
‘‘(e) NONAPPLICATION OF SECTION.—This section shall not apply
to—
‘‘(1) a nonresident alien, or
‘‘(2) a trust all of the unexpired interests in which are devoted
to one or more of the purposes described in section
170(c)(2)(B).’’.
(2) ESTIMATED TAXES.—Section 6654 of the Internal Revenue
Code of 1986 is amended—
(A) in subsection (a), by striking ‘‘and the tax under
chapter 2’’ and inserting ‘‘the tax under chapter 2, and the
tax under chapter 2A’’; and
(B) in subsection (f)—
(i) by striking ‘‘minus’’ at the end of paragraph (2)
and inserting ‘‘plus’’; and
(ii) by redesignating paragraph (3) as paragraph
(4) and inserting after paragraph (2) the following new
paragraph:
‘‘(3) the taxes imposed by chapter 2A, minus’’.
(3) CLERICAL AMENDMENT.—The table of chapters for subtitle
A of chapter 1 of the Internal Revenue Code of 1986 is
amended by inserting after the item relating to chapter 2 the
following new item:
‘‘CHAPTER 2A—UNEARNED INCOME MEDICARE CONTRIBUTION’’.
(4) EFFECTIVE DATES.—The amendments made by this subsection
shall apply to taxable years beginning after December
31, 2012.
(b) EARNED INCOME.—
(1) THRESHOLD.—
(A) FICA.—øAmended section 3101(b)(2) of the IRC, as
added by section 9015 (and amended by section 10906) of
PPACA, including inserting a new subparagraph (B)¿
(B) SECA.—øAmended section 1401(b)(2) of the IRC,
as added by section 9015 (and amended by section 10906)
of PPACA, including inserting a new clause (ii) in subparagraph
(A)¿
(2) ESTIMATED TAXES.—Section 6654 of the Internal Revenue
Code of 1986 is amended by redesignating subsection (m)
as subsection (n) and by inserting after subsection (l) the following
new subsection:
‘‘(m) SPECIAL RULE FOR MEDICARE TAX.—For purposes of this
section, the tax imposed under section 3101(b)(2) (to the extent not
withheld) shall be treated as a tax imposed under chapter 2.’’.
(3) EFFECTIVE DATE.—The amendments made by this subsection
shall apply with respect to remuneration received, and
taxable years beginning after, December 31, 2012.
Plus, if you've gotten this far, you can look up portions of the Internal Revenue Code (IRC) referred to above.
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