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PolitiFact.com | Tampa Bay Times
Sorting out the truth in politics

New investment tax won't affect most homeowners

The statement

Says real estate taxes were put in place to pay for Obamacare.

Texas state Rep. Todd Hunter, R-Corpus Christi

The ruling

Hunter pointed us to a Nov. 17 Forbes.com blog post by Michael Chamberlain, a personal financial planner. Headlined "Will You Pay the New Obamacare Tax," the post says a surtax in the law means couples with incomes over $250,000 a year and singles earning more than $200,000 could see their taxes increase in 2013.

He also nudged us to an undated publication on the tax from the National Association of Realtors, which says in part that the "tax WILL NOT be imposed on all real estate transactions, a common misconception."

Indeed.

In February 2011, PolitiFact debunked a claim that under Obamacare, all real-estate transactions would be subject to a 3.8 percent sales tax. That statement, rated Pants on Fire, is deceptive because a Medicare tax on investment income created under the law applies to the investment income of single taxpayers who make more than $200,000 or couples who make more than $250,000. (It's spelled out in Section 1402 of the Health Care and Education Reconciliation Act of 2010, titled "Unearned income Medicare contribution.")

That seems worth stressing.

The tax would only apply to very high earners, accounting for no more than 2 percent of taxpayers, Roberton Williams, a senior fellow at the Washington-based Tax Policy Center, told us by telephone. For them, he noted, the tax would apply to the lesser of how much the taxpayer's adjusted gross income exceeds the $200,000/$250,000 threshold or the amount that their investment gains exceed the relevant threshold.

And which investments might be subjected to the tax?

According to the Internal Revenue Service, the Net Investment Income Tax applies, starting in 2013, to investment income for those very high earners from interest, dividends, capital gains, rental and royalty income and certain annuities plus income from businesses involved in trading financial instruments or commodities and businesses that are "passive activities to the taxpayer," meaning they're held for the purposes of gradual long-term appreciation.

PolitiFact has pointed out that homeowners will not be socked by the tax even if they make sales profits of hundreds of thousands of dollars. That's because there's a long-standing tax exemption on the profits from home sales. To be hit with the investment tax, you would have to clear more than $250,000 in profit off your home, which means at least $250,000 more than you paid for it. The ceiling is higher for a married couple. Married couples are not taxed on the first $500,000 of profit from home sales. And again, that's profit, not the sales price.

Finally, we wondered how much total revenue the tax is expected to produce. Williams suggested we consider research by the Joint Committee on Taxation, which assists members of Congress on tax policy. The panel's March 20, 2010, fiscal analysis of the health care law says that combined with a change in law stepping up payroll tax contributions by high-income taxpayers, the investment tax is expected to raise $210 billion from 2010 through 2019, a little under half of $438 billion in net revenue attributed to the overall law.

Hunter later said he didn't intend to scare anybody with his comment. "We do need to make sure folks know how complicated this deal is," Hunter said.

Hunter said real estate taxes were put in place to pay for Obamacare. We rate the claim Mostly False.

This ruling as been edited for print. For more, see PolitiFact.com.

New investment tax won't affect most homeowners 12/15/12 [Last modified: Thursday, December 13, 2012 8:27pm]
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