Medical tax to burden homebuyers

Yes, the report of the Financial Crisis Inquiry Commission is out.  It’s over 600 pages long.  Sources I respect say it’s the expected whitewash.  I probably won’t ever read it. I still haven’t read the Obamacare Act (yeah, thats not a good name for it, we really oughta call it something like DemoPublicare.)  Anyhow, I just found out how it’s going to increase the screwing up of the housing market.

As Lew Sichelman explains, it includes

a highly targeted 3.8% tax enacted as part of the controversial health-care reform legislation that has been signed into law and which Republicans are now trying to overturn.

The tax will apply to individuals with adjusted gross incomes above $200,000 and couples filing jointly with more than a $250,000 AGI. If you and your spouse choose to file jointly, the AGI threshold is $125,000 for each of you.

The Medicare tax, so named because the proceeds are to be dedicated to the Medicare Trust Fund, will be on interest dividends, rents less expenses, and capital gains less capital losses. But the key thing to remember is that the tax is based on whichever is less, the gain you made on the sale of the house or the amount your income exceeds the AGI threshold.

It’s complicated, so it’s hard to predict how it will effect every seller. As always with tax matters, it’s best to consult with a professional.

Of course, the income limits may change (legislatively or thru unmeasured inflation), so any of us who own our housing better save all receipts which might possibly have anything to do with adjusting the basis.  But at least it doesn’t immediately affect the rest of us, does it?

Not so.  I’d say this is another in a series of moves discouraging old people from selling houses that are larger than they need or really want, and which would otherwise be bought by families with children who could use the space.  Earlier policies with similar effect include real estate tax breaks targeted at old people, and whatever programs facilitate reverse mortgages.

So what will homeseeking families do? Most likely, they’ll find houses they can afford, and the probability is that these will be further out. (The tax presumably also applies to sales of high-priced vacant lots, another force discouraging construction of homes on well-located sites.)

So maybe instead of the Obamacare Act, we should call it the Sprawl Enhancement and Old People Stabilitzation Act.