From the Archives: Will Obamacare Tax Your Home Sale?

It’s a holiday week, so I’m re-posting popular posts from the past. New material will resume on Monday the 14th.

This post from 2012 is about the Affordable Care Act and taxation of home sales. The short answer is “no,” for most people.

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Originally published July 17, 2012

I’ve seen another round of chain e-mails and web postings about this, so here we go again:not everyone will be taxed on home sales under “Obamacare”.

The health care reform bill does indeed assess a 3.8% surtax on investment income, which would include gains on home sales. But the tax doesn’t apply to everyone.

The first question is: did you own and live in the home at least 2 out of the last 5 years prior to the sale?

The second question is: did you sell your home for more than you originally paid for it? The technical tax term for this would be selling your home for a gain.

If you owned and lived in your home for at least 2 out of the last 5 years prior to the sale, you can sell your home for a gain of up to $250,000 (if you’re single) or $500,000 (if you’re married) without being taxed on the gain.

The next question is, is your total income above $200,000 if single or $250,000 if married? If your income is less than this, the 3.8% tax doesn’t apply to you even if you have a taxable gain from the sale of your home.

Example:

John and Mary sell their home for $600,000. They originally paid $50,000 for it. Their gain is $550,000. Because they meet the 2-out-of-5 rule, they can exclude $500,000 of that gain. The $50,000 remaining gain will be subject to capital gains tax, but will only be subject to the 3.8% surtax if their total income, including the $50,000 taxable gain, exceeds $250,000.

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