The Journal of Accountancy has the article False internet rumors about “real estate transaction tax” worry taxpayers.
The National Association of Realtors has some tax advice for users of the internet: Don’t believe everything you read.
In anticipation that I will hear from some people about this false rumor, I have decided to publish this blog post with a link to the actual article. You have to read the article for all the details, but here is the example the article mentions.
Example: A married couple with MAGI of $325,000 purchased a home in California many years ago for $350,000 and sold it this year for $900,000, realizing a gain of $550,000. After excluding $500,000 gain under Sec. 121, they are left with $50,000 investment income (assume they have no other investment income). Since their AGI is $75,000 over the tax’s threshold amount for married taxpayers filing jointly, the lesser amount of $50,000 would be subject to taxation. At 3.8% they would owe $1,900.
So first, this couple had a $325,000 modified adjusted gross income and then they sold a house for a gain of $550,000. Their tax on the real estate transaction of $1,900 amounted to 0.35% of their real estate gain. Moreover, they had $325,000 modified adjusted gross income beyond the real estate gain to cover the $1,900 tax. I don’t think they will have to choose between paying their taxes and eating their next meal over a tax bill of this size.