Do I Have to Pay a Real Estate Tax On My New Home In Prattville Alabama? Part 1

Do I Have to Pay a Real Estate Tax On My New Home In Prattville Alabama? Part 1

 

There’s a nasty rumor going around out there.  Recently someone started a rumor that soon every home owner will have to pay a real estate tax when they sell a home in Prattville, Montgomery, or the River Region, AL.  They claim that this real estate tax was hidden within the Federal health care bill.  They even called it a “sales tax.”

But it’s not true.  At least, not the way the rumor told it.  While it is true that there is a 3.8% Medicare tax that high income households MIGHT have to pay when they sell real estate, it only applies to people whose income and proceeds from the sale of their house are over the limits that already exist.  There are two tests that will apply.  The first is the capitol gains test, which looks at how much capitol gain (profit) you make when you sell your home.  The second test is an income test, and we’ll talk about that next time.

All of this might sound a little confusing, so let’s look at an example.

Right now, individual people who sell their homes don’t have to pay any tax on the capitol gains (or, in other words, the profit they make on selling their home) as long as the amount of the capitol gain is less than $250,000.  For married couples, the limit is $500,000.  So let’s say you bought your house 10 years ago and paid $100,000.  Let’s say that you want to sell it now, and that you are willing to pay 3% of the price toward closing costs and 6% of the price toward real estate commissions (real estate commissions and the terms of the contract are all negotiable are aren’t set by law). So if you sell this house you bought 10 years ago for $384,615 or less, you won’t have to pay the tax.  Here’s why:

Start with the sellPrattville & Montgomery Capitol Gains Taxing price of $384,615 and subtract the amount you have agreed to pay for closing costs.  Then subtract the amount you agreed to pay for real estate commissions.  This leaves $350,000.  Don’t forget to subtract the price you paid for your house 10 years ago, which is $100,000.  So after everything is subtracted, in our example you made a profit (or a capitol gain) of $250,000 when you sold your home.  Since the capitol gain you made is $250,000 or less, this means you won’t have to pay the new Federal 3.8% Medicare tax on the profit you made. Remember, these numbers are just an example. Your numbers may be different.

So what happens if you make a capitol gain MORE than $250,000 when you sell your house? We’ll cover that in the next post, “Do I Have to Pay a Real Estate Tax On My New Home In Prattville Alabama? – Part 2.”

 

 

Do I Have to Pay a Real Estate Tax On My New Home In Prattville Alabama? Part 1

 

 

 

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