3.8% Tax Bite ... Will This Impact the Sale of Your Laguna Beach Home?

First of all, I want to advise you that this article will be longer than usual. But its length will be more than justified by the incredibly valuable information if offers to everyone with a Laguna Beach home for sale, or any other home you will be selling. 

Now, most of you already are aware that a 3.8% healthcare tax will be assessed against home sellers after 2012. And you’re probably in a quandary about the whole thing, especially if you’re planning to sell any of your Laguna Beach real estate. But will the dreaded assessment really impact the sale of your Laguna Beach home? These facts should steer you out of the fog.  

Who Will Be Affected?

First of all, toss all the rumors on the garbage heap. It’s true that next year, a new 3.8% surtax will go into motion. But the levy has a nearly zero chance of impacting most homeowners selling their primary residence in 2013.  That’s because the new assessment has a very narrow target – people with specific investment income, such as dividends, interest, net capital gains, and net rental income. This means, if your income is completely ‘earned’ as company salary or any other compensation stemming from your active participation in a business, you’re totally off the hook. As pointed out by Ken Harney in a recent Washington Post article:

“Yes, upper-income individuals face a new 3.8 percent surtax that takes effect Jan. 1 on certain investment income, including some of their real estate transactions. But it’s not a transfer tax and it’s not likely to affect the vast majority of homeowners who sell their primary residences next year. In fact, unless you have an adjusted gross income of more than $200,000 as a single-filing taxpayer or $250,000 for a couple filing jointly ($125,000 if you’re married filing singly), you probably won’t be touched by the surtax at all. (You might, however, be affected by other changes in the tax code if Congress fails to extend the Bush-era tax cuts scheduled to expire at the end of this year.)”

You’ll be glad to know the tax steers completely clear of the tax-free exclusions pertaining to the sale of your principle residence (The first $500,000 for joint-filers, $250,000 for single-filers.) You also can keep the tax man away by saving receipts for home improvements because these reduce capital gains that could be affected by the 3.8% tax.   

The Post article offers further insights provided by the National Association of Realtors’ tax staff:

“Say you and your spouse have adjustable gross income (AGI) of $325,000 and you sell your home at a $525,000 profit. Assuming you qualify, $500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the health-care law, giving you a revised AGI of $350,000. Since the law imposes the 3.8 percent surtax on the lesser of either the amount that your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950 ($25,000 times .038).”

Remember, we’re talking primary residence here. The 3.8% tax can gobble up a much larger chunk if your capital gain flows from the sale of a Laguna Beach vacation home or Laguna Beach investment property. In this case, Uncle Sam might have dibs on all the profits. Are you considering the sale of any of these vulnerable properties? Seek the wise counsel of a tax professional ASAP.  

If you’d like to learn more about the health care tax and how it can affect your Laguna Beach real estate, contact The Coastal Property Experts. We offer expert legal counsel that will keep you abreast of all the latest tax laws.

And, of course, if you’d like to learn more about the opportunities in the Laguna Beach real estate market, our acclaimed team is ready to assist you. Contact The Coastal Property Experts today to schedule your complimentary consultation. 

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