Affordable Care Act – does it affect you?

By Randall A. Pentiuk, Esq.

Every day in America, we are used to making purchases and paying sales tax on paper products, prepared foods, vehicles, and now digital downloads.  However, we have never paid sales taxes on the sale of our homes.  It was the one investment that remained untouched by the sales tax, instead it was taxed on a yearly basis according to market value.  That is all about to change.

For the first time, beginning January 1, 2013, the federal government will apply a 3.8 percent tax on the unearned income arising out of the proceeds from the sale of single family homes, townhouses, cooperatives, condominiums, and even rental income.  This depends on the seller’s individual circumstances and any capital gains tax exclusions.  This tax is itemized in the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare, in order to raise $210 billion to pay for this comprehensive healthcare bill.

Upon first glance, it appears that the tax will not apply to cooperatives and any taxpayer making less than $250,000.00 combined income.  The problem is that the tax in the health care bill is not indexed for inflation; so over time, if the healthcare bill is never changed, eventually more and more homeowners will be taxed.

Limited equity cooperatives will not really need to worry about the tax due to restrictions on transfer value, however, market rate cooperatives would be subject to the tax depending on the value of the membership and whether the amount the membership is sold for increases the seller’s adjusted gross income above the yearly limits.  Unfortunately for this very controversial tax on home sales, there will be no examples of how this tax actually works or what its impact will be until after January 1, 2013.

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