Alert
Close

Take AARP’s Smart Driver course and you could save money on your car insurance. Learn more

HIGHLIGHTS

Open

learning centers

Get smart strategies for managing health conditions.


Arthritis

Heart Disease

Diabetes

Most Popular

Viewed

Health Care Reform Explained

The New Health Care Law and Taxes on Home Sales

Your questions answered

home sales

— Tooga/Getty Images

Q. Is there a big new tax on home sales that is supposed to raise money to pay for health reform?

A. Readers from South Carolina to Washington state report there's an e-mail going around warning about the dire consequences of a new real estate tax included in the health reform law. They worry that more taxes will make it tougher to sell their homes. But the information they received leaves out some key details, including the fact that most people won't have to pay it.

It's true that, starting in 2013, the health reform law adds a 3.8 percent tax on unearned income such as investment or rental income, or the profit from the sale of a home. But there are two important exceptions to the tax: You only pay taxes on profit from a home sale above $250,000 for single people or $500,000 for couples. And the tax applies only to those wealthy Americans with individual incomes over $200,000 or over $250,000 for couples.

Plus, there are other criteria before the tax applies: The home sale must produce a profit, so any home that is "underwater" is exempt. Ranches and farms are also exempt, as are properties used for business.

If you don't meet all criteria, you don't pay the tax.

The money from this tax will help support the Medicare program.

The tax was designed to affect a very small minority of homeowners. Only about 4 percent of American households earn over $200,000 a year, according to the latest statistics from the U.S. Census, and 2 percent have incomes $250,000 and higher. So, at most, 4 percent of American households will face the health care tax. In addition, half of all existing homes sold for $178,600 or less, according to the latest figures from the National Association of Realtors. So most home sales do not produce a profit that could trigger the tax.

"We have been fighting the same rumor over and over that certain political groups have put out about this 'outrageous' tax," says Lucien Salvant, a spokesman for the association, which represents 1.1 million Realtors. "The vast middle class of folks are not going to be hit by this tax when they put their house up for sale."

For more details and examples of how the new tax is computed, go to the Realtors association website.

Susan Jaffe of Washington, D.C., covers health and aging issues and writes the Bulletin’s weekly column, Health Care Reform Explained: Your Questions Answered.

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts

Processing

Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.

Discounts & Benefits

From companies that meet the high standards of service and quality set by AARP.

Woman trying on glasses in optometrists shop

Members save up to 60% on eye exams and 30% on glasses at JCPenney Optical.

Prescription medication spilling out of bottle

Members get a free Rx card from AARP® Prescription Discounts provided by Catamaran.

AngiesList

Members can save 25% to 45% on their Angie's List membership.

Caregiving walking

Caregiving can be a lonely journey, but AARP offers resources that can help.