Posted by dhermesc on June 25, 2012 at 11:20:23 from (24.248.193.103):
In Reply to: Not quite. posted by steve_in_mo on June 25, 2012 at 10:31:17:
Agreed.
But most people will see it in the form of a realestate transfer.
The excluded gain on the sale of a personal residence is included for the purposes of calculating this tax. So if Grandma sells the home that she and grandpa bought back in the 1950s for $20,000 and she clears $300,000 she won't owe any "income tax" on the sale but the 3.8% is calculated on 155,000 ($300,000-$125,000 (floor) -$20,000 (basis). So the federal government grabbed $5,890 that she was going to use to pay for the retirement home.
Or if she had a farm that she and her husband paid $50,000 back in 1955 and sold today for $500,000 she would have to pay tax on $325,000 or $12,350. ($500,000-$125,000 (floor) -$50,000 (basis))
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