Is This Tax on Home Sales for Real?
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There were 68 residential home sales in the Lakes Region of NH in the month of August at an average price of $409,283. Last August there were 67 sales at an average price of $359,836. On a rolling 12 month basis ending 8/31/10 we stand at 773 sales at an average price of $312,298 compared to 675 sales with an average price of $295,414 for the 12 month period ending 8/31/09. That is a 14.5% increase in the total number of sales and about a 6% increase in the average price.
Sales in August were spread pretty evenly through all the different price ranges and it was nice to see more sales in the mid priced homes. So what kind of homes are selling? Most of the homes in the low to mid price ranges seemed to fall into the category of year round primary residences. There were the obvious fixer-uppers and entry level homes below $200,000 accounting for about 1/3 of the sales for the month. Most of the sales in the $200-300,000 range were primary residences with three sales definitely being vacation homes. In the over $400,000 price range just about half the sales were vacation or second homes. I think that is pretty good news in that some of the higher priced primary homes are moving.
Here’s a bit of potentially staggering bad news: did you know that starting in 2013 there will be a 3.8% tax on the sale of homes to help pay for the new health care bill passed by the Obama administration? That’s what we heard and it scared the bejeezus (technical real estate term) out of us. It seems like this new tax is a provision that was hidden in the 2,074 page health care bill that nobody bothered to read. The real estate industry is in the tank as it is, we certainly really don’t need to tax someone when they sell a home. If you check on Snopes.com you’ll find that this tax won’t affect everyone, but it could be potentially devastating to the second home and vacation home industry. According to Snopes.com this tax is on “net investment income” not the sales of homes in particular and only applies to taxpayers that have a joint combined income of over $250,000 or $125,000 singly. It states that a lot of people also won’t be affected by this tax because (a) they don’t meet the income level or (b) they don’t have a “net investment income” on the sale of their PRIMARY home because the first $250,000 (single owner) or $500,000 (married couple) of any sale is exempt from capital gains.
So, while the average Joe Homeowner might get away without paying for Jose Homeowner’s health insurance in Waco, Texas when he sells his home, there appears to me to a much bigger problem for the second home market in general and our market in the Lakes Region in particular. Second homes do not have the $250,000 or $500,000 per couple exemption when a property is sold because they are not primary residences. And let’s face it, second home owners are more likely to exceed the income levels or they wouldn’t be able to afford that waterfront to begin with. So if a waterfront owner decides to sell his home that he bought in 1987 for $700,000 and now sells it for $2 million dollars he would be taxed on the $1.3 million difference in the amount of just over $49,000 for health care plus the capital gains tax (which is also going to increase)! I agree that in this example the homeowner is making a hefty profit on the sale of his home, but an extra $49K on top of the capital gains tax can either deter the owner from selling or more likely will cause him to increase the asking price of the home. That’s just what we need to help sales; higher prices…
Snopes.com goes on to explain that this will affect a very small percentage of home sellers because the median sales price in the U.S was only $170,700 in March 2010 and only about 1.5% of all households in the U.S. have incomes over $250,000. That may be true, but take a drive along the shoreline of Winnipesaukee or along the coast of the Carolinas, Virginia, Florida, or anywhere that you find water and you’ll realize that are a staggering numbers of homes and homeowners that will be affected by this insane tax.
I sincerely hope I have misinterpreted this news, so please, if anyone has any different information or a better explanation please contact me!
Sales in August were spread pretty evenly through all the different price ranges and it was nice to see more sales in the mid priced homes. So what kind of homes are selling? Most of the homes in the low to mid price ranges seemed to fall into the category of year round primary residences. There were the obvious fixer-uppers and entry level homes below $200,000 accounting for about 1/3 of the sales for the month. Most of the sales in the $200-300,000 range were primary residences with three sales definitely being vacation homes. In the over $400,000 price range just about half the sales were vacation or second homes. I think that is pretty good news in that some of the higher priced primary homes are moving.
Here’s a bit of potentially staggering bad news: did you know that starting in 2013 there will be a 3.8% tax on the sale of homes to help pay for the new health care bill passed by the Obama administration? That’s what we heard and it scared the bejeezus (technical real estate term) out of us. It seems like this new tax is a provision that was hidden in the 2,074 page health care bill that nobody bothered to read. The real estate industry is in the tank as it is, we certainly really don’t need to tax someone when they sell a home. If you check on Snopes.com you’ll find that this tax won’t affect everyone, but it could be potentially devastating to the second home and vacation home industry. According to Snopes.com this tax is on “net investment income” not the sales of homes in particular and only applies to taxpayers that have a joint combined income of over $250,000 or $125,000 singly. It states that a lot of people also won’t be affected by this tax because (a) they don’t meet the income level or (b) they don’t have a “net investment income” on the sale of their PRIMARY home because the first $250,000 (single owner) or $500,000 (married couple) of any sale is exempt from capital gains.
So, while the average Joe Homeowner might get away without paying for Jose Homeowner’s health insurance in Waco, Texas when he sells his home, there appears to me to a much bigger problem for the second home market in general and our market in the Lakes Region in particular. Second homes do not have the $250,000 or $500,000 per couple exemption when a property is sold because they are not primary residences. And let’s face it, second home owners are more likely to exceed the income levels or they wouldn’t be able to afford that waterfront to begin with. So if a waterfront owner decides to sell his home that he bought in 1987 for $700,000 and now sells it for $2 million dollars he would be taxed on the $1.3 million difference in the amount of just over $49,000 for health care plus the capital gains tax (which is also going to increase)! I agree that in this example the homeowner is making a hefty profit on the sale of his home, but an extra $49K on top of the capital gains tax can either deter the owner from selling or more likely will cause him to increase the asking price of the home. That’s just what we need to help sales; higher prices…
Snopes.com goes on to explain that this will affect a very small percentage of home sellers because the median sales price in the U.S was only $170,700 in March 2010 and only about 1.5% of all households in the U.S. have incomes over $250,000. That may be true, but take a drive along the shoreline of Winnipesaukee or along the coast of the Carolinas, Virginia, Florida, or anywhere that you find water and you’ll realize that are a staggering numbers of homes and homeowners that will be affected by this insane tax.
I sincerely hope I have misinterpreted this news, so please, if anyone has any different information or a better explanation please contact me!
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