Don’t believe what you read on the Internet: No special home sales tax

It’s a rumor that keeps going and going like a battery-powered bunny. But it’s mostly not true.

Like every great rumor, however, it has a kernel of truth in it and that is just enough to power it across the pages of Facebook. The Affordable Care Act has a provision that has been exaggerated as it has moved across the Internet and social media sites.

But here is the truth: You do not have to pay a federal tax if you sell your house.

UNLESS… you sell it for a profit of more than $500,000. So if you bought a house for $100,000 and you sell it from $599,000, you would owe no special Medicare tax, even though you made a tidy profit. And, that only applies if a couple has an Adjusted Gross Income of $200,000 or more. ($250K for singles.) But let’s say you bought a house for $100K and you sold it for $500,010. You would owe a Medicare tax of 3.8 percent on $10. Or a total of 38 cents. So, yes, there is a tax that might apply to home sales in the Act but, no, it doesn’t apply to every home sale or even many home sales.

According to Forbes, the Tax Policy Center figures that for 2013 about 0.2 percent of households with cash income of $100,000-$200,000 qualified for the additional tax. In addition, the tax typically won’t include capital gains resulting from the sale of a home if home is a primary residence and not a vacation or rental home.

Why? Because the capital gains tax exclusion rule for sales of a primary home — $250,000 for individuals and $500,000 for couples — will remain.

When the profit realized from the sale of the home falls below those capital gains exclusion totals, then it can’t be tacked on to that household’s net-investment income tally. Hence, that 3.8 percent Medicare tax would not apply.