Maybe you’ve received the e-mail making the rounds these days which states “Under the new health care bill – did you know that all real estate transactions are now subject to a 3.8% sales tax?” Of course I was alarmed because a tax on real estate would be just one more blow to the economy, as real estate contributes 32% to our nation’s GDP (Gross Domestic Product).
Upon searching factcheck.org I discovered this is partially true. According to factcheck.org “Democratic lawmakers decided on a new 3.8 percent tax on the net investment income of high-income persons.” They go on to write that the law is misleading, and it would be easy to see why anyone reading it would believe the 3.8% tax applies to everyone that sells a home. So the circulating e-mails may not have been intentionally misleading or malicious.
Furthermore, the 3.8% tax won’t apply to everyone. It will apply only to profit on the sale of a home exceeding $250,000 for a single person or $500,000 for a married couple filing jointly. There are some minimum income requirements too. The tax is not scheduled to go into effect until 2013, after the next election. We are not tax professionals, so we encourage everyone to consult with their own tax advisor.
It appears that Congress and the President have snuck in additional capital gains taxes on real estate. It is easy to see why this fact has not been advertised because it is not very popular with Americans right now.
Home Prices Slip
Median home prices are up over 9% from last year, but they did take a step back in May, down 4.53% from April’s numbers. The median sales price of a home stands at $96,900, down from $101,500 a month earlier but up from $87,900 last year. Home sales remained strong in April with 1,460 sales in May, which was up over last year’s 1,417 number.
We have noticed a drop in pending sales in June. We know that many sales have been delayed or fallen out due to the flood insurance expiration. Congress has not renewed the National Flood Insurance Program, so essentially it’s impossible to get a mortgage on properties that require flood insurance. One tactic people are using is buyers assuming the sellers existing flood insurance, if it exists. You cannot do this with hazard insurance, but it can be done with flood insurance.
We’ll keep a close eye on the SW Florida real estate market going forward. Oil has not hit here, and as we wrote last week, there are scientific reasons why it may not ever. We have lost one sale from a buyer who definitely wanted to buy a waterfront home but is waiting to see what happens with the oil spill. Between the oil, flood insurance, tax hikes, expiration of tax credits, and the like we’d hope that our government would be more proactive in stimulating real estate activity, because we know real estate sales stimulate the economy. At the very least, renew the flood insurance program and eliminate tax hikes on sales so people who want to purchase can again.