We hear a lot of talk and rumors about ObamaCare and what its effects will really be on business and real estate.  Perhaps it’s a mystery because the new tax in the legislation was never introduced, debated, or reviewed until just hours before its passage.  Remember when Nancy Pelosi said “We must pass this legislation to find out what’s in it”?  She wasn’t kidding.  Nowhere was a new tax on real estate or capital gains talked about before its passage, so of course people are asking questions now that the new tax is set to take effect after the election. Does ObamaCare Raise Taxes on Real Estate?

ObamaCare and Taxes

With that said, it’s a new tax that isn’t going to affect everyone, so that’s the only silver lining.  They needed this revenue because Medicare is set to run dry in a few years, so this new tax will supply $210 Billion over 10 years and will help to extend the life of Medicare a few years.

Here is the breakdown as we understand it.  There are 2 new taxes.  One is a 3.8% tax on unearned income like interest, dividend, rents, capital gains and the second tax is a .9% tax on income such as salary, wages, commissions, etc.

The 3.8% tax will apply to individuals with an adjusted gross income above $200,000 and couples filing a joint return with more than $250,000 adjusted gross income. Once you meet those criteria, there are complicated formulas we won’t go into here.  It’s probably best to consult with your accountant on that.

Will the Fed’s New Stimulus Help Housing? The Fed has promised to pump money into mortgage backed securities as a way to buy down interest rates, also knows as the QE3 Stimulus.  Nobody knows what effect it will have on real estate.  All we can say is it couldn’t hurt.  However, rates have been low and the market is still relying on the overall economy to improve.  This action by the Fed will reduce borrowing costs, but it will also reduce rates paid to savers like senior citizens.  Seniors today cannot be happy.  We may see real inflation creep up and rates stay low, so seniors will actually lose money on the deal.

Real estate accounts for about 32% of GDP, so anything that gets real estate going may help the economy.  We believe that real estate and the economy need each other.  Having a balanced budget, lower taxes, and leadership in Washington where business could plan would best stimulate the economy and help real estate.  A rising tide lifts all boats, and we think real estate would take off if Washington tried this approach.

It’s a rather simple equation and yet our government is so divided we’re not sure that will get done.  So for now all we can do is report the effect the ObamaCare taxes will have on real estate transactions.  Last time I checked we had about a 4 Year + supply of $1 million homes on the market.  Taxing those transactions further won’t do anything to help housing.  I’d really like to know whose bright idea this was to sneak this tax in at midnight.  What happened to Obama’s promise of transparency and all bills would be viewable to the public for 3 days before a vote?  Was that just an empty campaign promise?

4 years later these things matter.  Taxes are set to rise in 2013; some from ObamaCare and some from Congress’ inability to pass a budget.  Did you know the Senate hasn’t passed a budget in 3 ½ years?  They just keep passing continuing resolutions and raising the debt ceiling.

Keep your eyes open.  If we find any other new taxes they try to sneak in on us we’ll be sure to point them out.