The Obamacare tax was imposed in 2013 on “net investment income” in order to shovel more money from Americans who don’t work in health care to Americans who do work in health care. Capital gains from selling a house, interest, dividends, etc. are hit with an extra 3.8 percent federal tax. For an individual filer, the first $200,000 is exempt, but this amount is not indexed to inflation. The Obamacare law was signed in March 2010. If the threshold had been indexed to the official CPI, it would be over $260,000 today. So the government is collecting an extra $2,280 from everyone who would have been subject to this tax as originally envisioned. Given that the main reason an average taxpayer would be hit by this tax is selling a house, what if we instead indexed this to the average price of a house? It was $275,000 in March 2010 (St. Louis Fed) and is about $500,000 today. So the $200,000 threshold should be $367,000.
- “Homes Earned More for Owners Than Their Jobs Last Year” (WSJ): Increase in value of typical U.S. home exceeded median worker income for first time, Zillow says
- “Here’s how rising inflation may lead to higher tax bills” (CNBC, Nov 2021): “It’s a hodgepodge of things that get left out,” said certified financial planner Larry Harris, director of tax services at Parsec Financial in Asheville, North Carolina. “And it’s not just hitting wealthy taxpayers.” For example, couples filing together selling their primary home may exclude up to $500,000 of profit from capital gains taxes ($250,000 for single filers), provided they meet the ownership and use tests. These amounts haven’t changed since 1997, despite median home sales prices more than doubling over the past 20 years, and property values have outpaced wages over the past decade.