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A 3.8% tax to fund healthcare? Yes and no

An anonymous e-mail saying anyone selling a home after 2012 'will pay a 3.8% sales tax on it' is flawed. It's a capital-gains tax, not a sales tax. And up to $500,000 is exempt, so relatively few sellers will be affected.

February 11, 2011|David Lazarus

There's an e-mail going around warning that anyone who sells their home after 2012 "will pay a 3.8% sales tax on it" to help fund President Obama's healthcare reform law.

"Oh, you weren't aware this was in the Obamacare bill?" says the e-mail, which is being forwarded by many people but the origins of which remain a mystery. "Guess what, you aren't alone. There are more than a few members of Congress that aren't aware of it either."

The e-mail was called to my attention by Chino resident Ken Burton, who wanted to know whether it was legit.

The answer is yes. And not exactly.

First off, it's not actually a sales tax. It's a capital-gains tax. And since as much as $500,000 in capital-gains exemptions can apply to property sales, relatively few home sellers will feel the bite of the levy.

Here's what's really going on:

To help fund healthcare reform, which includes subsidies for people who may not be able to afford insurance, Democratic lawmakers included a provision in the law imposing a new 3.8% tax on the investment income of high-income people.

It applies only to those earning more than $200,000 a year, or $250,000 for married couples filing jointly. According to Census Bureau figures, that means only about 2% of U.S. households are subject to the tax. Everyone else is free and clear.

Yet even for the wealthy, the tax won't apply to the first $250,000 in profit from the sale of a personal residence, or the first $500,000 in the case of married couples.

But if the intent of the mystery e-mail was to stoke fear among homeowners, it's had the desired effect.

"We've been getting a lot of phone calls about this," said Beth Peerce, president of the California Assn. of Realtors. "It's been a real hassle."

To illustrate how the tax works, she gave the hypothetical example of a married couple that purchased a home in Southern California years ago for $350,000. Let's say it's now worth $1 million.

If they sell the home, that would normally translate to a profit of $650,000. But the couple can immediately exclude $500,000 from their tax obligation, leaving $150,000 subject to taxation.

Even then, Peerce said, tens of thousands of dollars in additional exemptions could be claimed for improvements to the property over the years and costs related to its sale.

"In this case, if you were left with even $50,000 in taxable income, I'd eat my hat," she said. "But you'd have to pay the extra 3.8% on that."

Of course, that's only if the couple pulls down at least a quarter of a million dollars a year in joint income. If so, I'd venture that the $1,900 in extra taxes probably wouldn't be the end of the world.

This is a far cry from the example in the e-mail making the rounds. It offers the scenario of someone selling a $400,000 home and getting stuck with $15,200 in taxes.

"This bill is set to screw the retiring generation who often downsize their homes," the e-mail declares.

So who sent out the e-mail? Peerce said she could think of a few likely suspects, but she declined to speculate.

I can think of some suspects too, including Republican operatives, "tea party" types, insurance industry dirty tricksters and others opposed to healthcare reform for ideological or financial reasons. But at this point, the source of the e-mail remains a mystery.

What's important is that while there may be a kernel of truth in the tax warning, the reality is that most people face no problem at all.

Missing points

Speaking of money woes, here's a truly classic example of a customer being given the runaround by big banks.

Silver Lake resident Gil Young decided last fall to cash in about 25,000 reward points on his Bank of America credit card. He had no travel planned, so he figured he'd pocket the $250.

A few months went by and he hadn't received his check, so Young, 63, contacted the bank. He was told that the check had been sent out and had been deposited in a Chase bank account. To prove its point, BofA sent Young a copy of the cashed check.

Sure enough, there was his signature on the back and a note that the check had been endorsed to a Gloria Martinez.

"The problem was that this wasn't my signature and I don't know anyone named Gloria Martinez," Young told me. He assumes the check was stolen from his mailbox and then fraudulently deposited at Chase.

So now what? A BofA service rep advised Young to take it up with Chase. He went to a Chase branch in Los Feliz and spoke to the manager.

"He said he couldn't do anything because I'm not a Chase customer," Young said. "He told me to take it up with Bank of America."

This went round and round, back and forth, until Young finally threw in the towel and contacted me. Was there a way to recover stolen reward points?

A Chase spokesman told me he sympathized with Young's plight, but the only recourse now that the money had been deposited was for Young to try to sue Gloria Martinez.

Happily, he won't have to do that. As a result of my nosing around, BofA restored the purloined reward points to Young's account. A BofA spokeswoman said the bank wanted "to do the right thing for a customer."

If this ever happens to you, call your bank and request that a fraud investigation be started. Also ask that your bank's fraud investigators immediately contact the bank where the stolen check was deposited.

If you move quickly enough, there's a pretty good chance your money will be recovered. If not, well, you know where to find me.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to david.lazarus@latimes.com.

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