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Pay Income Tax on the Sale of Your Home Some of the proposals associated with permanent repeal or amendment of the estate tax would likely result in paying tax on the gain on the sale of a principal residence. Many people will automatically react negatively to any proposal which could end up having them pay tax on the gain on the sale of the principal residence since current tax laws allow you to escape paying income taxes on some or all of the gain. Under the current system you can also pay substantially more tax overall if you own a principal residence at the time of death with an estate that will be subject to estate taxes. However, if there were a complete change in current tax laws to a simplified tax code such as I propose, you could actually be financially much better off by paying income taxes on the sale of your principal residence. A simple example can show the benefits. Assume that a husband and wife have two children, an income consisting of wages of $75,000 a year and a house worth $250,000 that was bought for $175,000. The couple makes charitable contributions of $1,500 per year, pays interest on the loan on the residence of $5,500 a year and pays various state and local taxes of $6,500. The couple also makes purchases which would be subject to a national sales tax of $24,000 per year if there were such a tax. At the end of 30 years the couple sells their residence for $350,000. Under the current tax law this couple would pay Federal income and employment taxes of approximately $10,500 a year for 18 years and approximately $13,300 a year for 12 years. Under the code I propose in Let's REALLY Change Taxes this same couple would pay income, employment and sales taxes of approximately $7,600 per year for 18 years and approximately $9,600 per year for 12 years. At the end of 30 years upon the sale of the home the couple would also pay income taxes under my proposal of $17,500. The total savings would be approximately $96,300 over the 30 years before the home was sold with a net tax savings after the sale of the home of approximately $78,800. If the annual savings were invested at a return of 7% per year, quite possible in the stock market, and paid taxes on that annual gain at the 10% rate I propose, at the end of 30 years the couple would have approximately $235,000 saved after payment of all taxes under my system. This savings does not consider that $350,000 left after the sale of the residence. Would you be willing to pay income taxes on the gain of your residence if you could make $235,000 doing so? |
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