Will I pay an ACA/ObamaCare tax when I sell my home?

Q: Is there an 3.8 percent federal tax on the sale price of homes after 2014? I was told that an "ObamaCare tax" started on Jan. 1, 2013 and applied to sellers at closing on the sale price of their home.

A: Some homeowners will pay this 3.8 percent tax when they sell their homes, but only if they meet certain conditions. The good news is that there is a pretty high threshold before this levy eats away at some of your capital gain.

Are you subject to the tax?

The tax on "unearned" passive income (interest, dividends, annuities, capital gains and other forms of income) is called the "Net Investment Income Tax", and can kick in if your Adjusted Gross Income (AGI) is over $200,000 (single) or $250,000 (married). Taxes would be owed if a taxpayer has modified adjusted gross income over these AGI thresholds and also has Net Investment Income.

However, a primary-residence home is a special case, as the first $250,000 ($500,000 for married filing jointly) of that home-sale capital gain is not subject to tax, so you would need capital gains in excess of that $250,000/$500,000 level to create a tax liability.

As such, if you sell your home, have a capital gain in excess of the $250,000/$500,000 exclusion and your income exceeds the income thresholds above, you would be liable for the NIIT levy.

The IRS defines a primary residence as one where you have owned and occupied for at least two of the five years prior to the date the home is sold.

Important considerations

Importantly, you are taxed not on the sale price of the asset, but rather the sales price less the acquisition price (what you paid for it, called "basis"); the difference between these figures is your capital gain. However, there are also allowances -- deductions from the total -- for certain documented home improvements (consult your tax advisor for details).

Here’s an example

If a married couple bought a house for $200,000 and sold it later for $600,000, the total capital gains (less any deductions allowed for improvements) would only be $400,000, and so not subject to the tax. This is true even if they are above the $250,000 income threshold; for the tax to occur in this case, they would need to both be above the $250,000 income threshold AND have capital gains in excess of $500,000 -- and even then, only the portion above the $500,000 would be subject to this 3.8 percent tax, not the entire $500,000-plus amount.

As with all tax-related items, you should consult with your tax professional before making any decisions.