There is an email making the rounds that says that the sale of your personal residence will be subject to the 3.8% surtax. It states that on a home sale of $200,000 the tax will be $7,600! Can this be true?
Well let’s tear it apart. The 3.8% surtax will apply to unearned income. A sale of a personal residence certainly qualifies for that. However the 3.8% surtax only applies if your adjusted gross income is $250,000 or more.
Next let’s look at the home sale itself. When a home is sold you take the sales price and subtract the cost of purchasing the home to come up with the gain. Next you apply the home sale exclusion, which says if you have owned your home for 5 years and have lived in it for 2 of those years you can take a $500,000 gain exclusion if you are married or $250,000 if you are single.
Now let’s add the two parts together. First you have to have an AGI of $250,000 or more, and then you must have sold your house for a gain of more than $500,000 for this rule to apply. If those 2 rules apply to you then you will have pay a 3.8% surtax on either the excess of income over the $250,000 AGI or on all your unearned income whichever amount is smaller.
So yes the 3.8% surtax can be applied to the sale of your personal residence but it is not quite as bad as it sounds.
