DISCLAIMER: The answers to questions in this segment are intended to be general in nature and do NOT constitute tax advice. Please contact a tax advisor to discuss your unique situation.
Q: Is it true that Obama is going to start taxing people when they sell their homes?
A: This comes from an e-mail that breathlessly states “did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That’s $3,800 on a $100,000 home.”
The answer is yes, you might pay income tax on sale of your home (not a “sales tax” as the e-mail puts it). But this will only apply to people with incomes above $200,000 ($250,000 if married filing jointly) and who sell their home for a gain of more than $250,000 ($500,000 for married filing jointly). Gain means sales price minus what you bought the home for. So if you bought your home for $100,000 and sell it for $200,000, you have a $100,000 gain.
For most taxpayers, this tax will only be an issue if their income is above $200,000 and they sell your home for a lot more than they bought it for.
This all assumes that you qualify for the $250,000/$500,000 exclusion, which leads us to our next question….
Q: How do I qualify for excluding the gain on the sale of my home?
A: The short answer is, if you have owned the home and used it as your primary residence for at least 2 out of the last 5 years, you can exclude up to $250,000 of the gain from capital gains tax ($500,000 if you are married and file a joint return).
Sometimes we throw around “tax geek” terms like “exclude the gain.” What this means is: you don’t include the gain in your income at all.