Little-Known Tax Funding Obamacare


#1

More of “we have to pass the bill to find out what’s in it” :rolleyes:

my9nj.com/story/23967715/njs-rich-funding-obamacare

The Affordable Care Act or Obamacare seems to be in the headlines every day because of all of the problems surrounding the launch. And while most realize the law is funded in part by the individual mandate and penalty tax, it is also being funded in ways that are not discussed as much in the media.

Luxury real estate broker Ron Aioso says there is a tax that is rarely discussed that also helps fund Obamacare. It is a tax on high-income taxpayers when they sell their homes.

Franklin Lakes, N.J. was listed on Forbes.com in 2010 as one of “America’s Most Expensive ZIP Codes”, with a median home price of $1.3M.

Aioso says homeowners in a neighborhood like this could really be impacted by the Obamacare tax.

“Where we are today in a luxury area, you look and you see this home behind me, somebody like this is really affected,” he said.

If you are single with an adjusted gross income of $200,000 or file jointly with an income of $250,000 or more, you may be impacted. Once you sell your home, any profits over the first $500,000 are already subject to a capital gains tax. And now those profits will have an additional 3.8% tax to fund Obamacare.

Aioso noted that there is also a lot of confusion surrounding this tax and many homeowners know little about it.

“I think more than anything we need some education on it so people fully understand what is this 3.8%? What am I paying?” Aioso said.


#2

But they are “the rich”, so it’s ok! :thumbsup::rolleyes:


#3

There are lots more of them. Some are taxes on insurers, based on the number of policies they write.

One that has concerned me is the additional 3.8% tax on capital gains, regardless of the income of the individual and regardless of what the gain was on.

Some capital gains don’t require a lot in the way of time or labor. Gains on stocks would be like that.

But on rental property? Rentals are a tough business, they’re risky and require a lot of time. I really do think the Obamacare tax on capital gains on rentals would dissuade me from entering into it. I suspect it will deter a lot of people from building new rental housing.

Livestock is even riskier and requires even more time. But Obamatax is on sales of breeding stock as well.

But the Democrats decreed it, so we all have to live with it.


#4

Is the medical device tax still around? I don’t look forward to paying a higher tax for a toothbrush or box of band aids. :mad:


#5

In some areas, there are already taxes levied when real estate transfers, such as mansion tax (residential properties that sell for $1,000,000+), tax for preservation funds, etc. In one wealthy area I’m knowledgeable about, the total tax burden when selling a $1,000,000 property, including Obamacare taxes, will be 6.8%.


#6

It would seem to me that one of the benefits of our current tax law is the ability to transform labor income which is taxed at high rates into capital gains which are taxed at much lower rates. i.e. you rehab a house with your own labor and sell it, the gain in value due to your labor is taxed at capital gains rates, you do the same work for someone else and they pay you and you get taxed at higher rates plus SS and medicare taxes. The current law weakens that somewhat, but it will be interesting to see if it weakens it enough to affect behavior.

It would be interesting to see what happened to rental housing construction when Reagan increased capital gains taxes and reduced the benefit of investing in rental housing. My guess is there was some hit, I don’t know how big though.


#7

The tax on real estate is actually quite stunning. Many, including those in the current administration, consider housing and the activities related to it a way to get out of the current (and ongoing) economic mess. Well, tax real estate on a national scale is one way to guarantee real estate activity will be lessened.


#8

No doubt there was a hit here. Reagan also eliminated the three-yr-income averaging and 10-yr forward average on Profit Participation Plans. The three-yr one was favorable for those who had a windfall gain of any kind. The 10-yr forward discontinuation (with no grandfathering to boot) hurt a lot of employees. Their conversion to IRA’s really didn’t do them much favor.


#9

And just wait until they disallow the mortgage interest on future tax returns. It is coming.


#10

We can only hope.


#11

Interesting to speculate about this.

One would think it would drive the price of housing down, at least somewhat. Since people make home-buying decisions based on the monthly payment more than anything else (assuming they find the house acceptable otherwise) a price reduction could offset the loss of the interest rate deduction in terms of payment size.

And for most people, the tax benefit isn’t all that massive. If a person has a $150,000 mortgage, the annual interest is going to be about $6,000. Most peoples’ marginal tax rate is 25%. So that’s a saving of $1500, declining each year. Even if the marginal rate is 30% and if the state rate is 5%, then that’s a saving of $2100/year, declining each year. If, by reason of price decline, the buyer only has to have a mortgage of $100,000, the annual payments will be $1600 less.

Hard to know whether people would change their habits because of loss of the deduction. But it has to be noted that you don’t get a deduction for interest on your car, and yet people buy them all the same.


#12

For the lower and middle income borrowers the benefit of the tax deduction is even less because it doesn’t have any net effect until your itemized deductions exceed the standard deduction, which for a married couple is around $12k. So the first $12k of itemized deductions give no tax benefit.

The real beneficiaries are people with expensive homes. Someone with a $1 million mortgage will get a tax deduction of around $45k a year and if he lives in a state with an income tax he will probably meet the standard deduction on state income tax alone. So the tax benefit is significant. But the problem is, for what benefit? That $1 million could be invested in the productive sector of the economy which produces jobs, whereas housing produces few jobs after the house is built.

Canada doesn’t allow mortgage interest to be deducted and somehow they still manage to find places to live.


#13

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