The tax agreement reached by Congress to avert the fiscal cliff could mean significantly higher tax rates for area residents selling their homes, a Greenwich realtor warned.
Between one-third and one-half of Greenwich homeowners could be affected by an increase in the capital gains rate and a new Medicare investment tax for gains that exceed $250,000, said Mark Pruner of Prudential Connecticut Realty.
Residents who own a home in Fairfield County that is not their primary residence could be in for a tax surprise when they go to sell, Pruner said.
Under the fiscal cliff agreement, capital gains of between $250,000 and $450,000 would be taxed at about an 18.8 percent rate, which includes a 15 percent capital gains tax and a new 3.8 percent Medicare investment tax.
Capital gains that exceed $450,000 for a couple would be taxed at a rate of 23.8 percent, Pruner said.
The bill includes a capital gains exemption of $500,000 for married couples selling their primary residence and $250,000 for individuals selling their primary residence.
“A lot of people are going to find out this is a big issue for them,” Pruner said. “The taxes were imposed to generate income on high-net worth individuals, but the unintended consequence is that the majority of funds are going to come from people who have lived in their homes for 10, 20, 30 years.”
After paying the mortgage, capital gains tax, Medicare investment tax, Connecticut conveyance tax, real estate commissions and legal fees, Pruner said homeowners may find their net earnings from a home sale are much smaller than expected.
“The tax bracket should be decided based on your other income, not on the gain you have from your primary residence,” Pruner said. “To take 20 percent of someone’s retirement is unfair … the only way out of this is to stay in your home until you die.”