Whether you agree with ObamaCare or not, few buyers and sellers of luxury
homes probably realize that one provision of the law could drastically impact
their bottom lines.
However, with the Supreme Court’s sign-off on the Constitutionality of the
law, more and more of the fine print is becoming clearer. As it turns out, some of
that fine print impacts capital gains for individuals with more than $200,000
in Adjust Gross Income (or $250,000 when filing jointly) who sell a home for a
profit exceeding $250,000 (or $500,000 when filing jointly).
This applies to almost ALL Westside Los Angeles homeowners.
In fact, it will also apply to an even wider pool of sellers in the years to
come. The reason? The AGI threshold I just mentioned is not indexed for
inflation. So as the economy improves, more and more individuals will enter
this bracket.
The fine print we’re talking about is a 3.8 percent Medicare tax on capital
gains exceeding the $250,000/$500,000 threshold on the sale of a principal
residence. In other words, if you sell a home for a $1.25 million profit, $1
million of that profit will be taxed at 3.8 percent.
Look at it this way: Every $1 million in profit will cost the seller an
extra $38,000 in taxes.
As agents, we’re not in the business of advising our
clients on tax issues. After all, unlike their business managers and
accountants, we don’t have a complete picture of their resources.
Our job is to manage expectations and price homes
appropriately. There’s little doubt that this new tax will take more money out
of sellers’ pockets, while hurting the value a buyer’s new home. In other
words, this is bad news for luxury home values on the SoCal luxury market.
The news is even worse for buyers and sellers whose
agents don’t understand the marketplace or how the industry is impacted by the
shifting political winds. At Westside Estate Agency, we place a high premium on
appropriate pricing. We know that this new tax policy will have an impact and
we will help our clients plan accordingly.
That’s the WEA Way.
