This week I have received several false emails from individuals asking if it was true what is going around that starting in 2013, there will be a 3.8% sales tax on all real estate transactions. There is only a very small truth to this myth. On Tuesday evening, I had a chance to talk to Schipp Ames, Political Director of the South Carolina REALTORS® Association from Columbia, SC at an RPAC event and I approached him on this subject. He says the 3.8% medicaid surtax will be applied to capital gains that come from investment sale or transfer of real estate. He sent me some additional information in an email the next day which explained that one of those taxes is the 3.8% medicaid surtax on investment income beginning in 2013 (including capital gains, rents, dividends, etc.). Note that capital gains do come from investment sale or transfer of real estate. The medicaid surtax is assessed on individuals earning over $200,000 individually or $250,000 as a couple. Since real estate is a capital gains transaction and in the case of a sale of a principal residence for a gain of more than the exclusion amount ($250,000 individually or $500,000 for a married couple) then in addition to capital gains (which is already scheduled to go up next year to 20%) you could possibly have an additional medicaid surtax of 3.8% on top of that amount. This will only kick in for the income that is above the $200,000/$250,000 modified adjusted gross income. Now, the kicker is that if you are not in a principal residence transaction and capital gains hits you right away (i.e. investment or rental income or a sale of principal residence held for less than 2 years) then if you have capital gains it could likely be hit with the 3.8% medicaid surtax - again ONLY if you are above the $200,000/$250,000 modified adjusted gross income levels. Hopefully this answers any questions you had regarding this new sales tax on real estate.
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