So who will be affected by this tax? Anyone who is considered “high income” taxpayer. That means any person who files their taxes as single and who earns over $200,000 would have the tax applied when they sell their home. Or, for people who file their taxes jointly and earn more than $250,000 combined would also be affected by the sales tax.

So what is the difference between “earned” and “unearned”? “Earned” income is any income that comes from a person’s work. It includes wages, salaries, and tips. It also includes any union benefits or income earned while disability. “Unearned” income any income that is not earned through work. This includes: gifts and inheritances, prizes and awards, dividends and interest, and any other income that has not been earned through wages and work.

The new 3.8% tax applies to the lesser investment income amount and the excess of the adjusted gross income amount of $200,000 if single or $250,000 if married.

For example, if a seller has sold West Knoxville residence and gained $525,000 and their adjusted gross income is $325,000. The tax would be applied as follows:

AGI Before Taxable Gain  – $325,000
Gain on Sale of Residence  – $525,000
Taxable Gain (Added to AGI) $25,000 ($525,000 – $500,000)
New AGI $350,000 ($325,000 + $25,000 taxable gain)
Excess of AGI over $250,000 $100,000 ($350,000 – $250,000)
Lesser Amount (Taxable) $25,000 (Taxable gain)
Tax Due $950 ($25,000 x 0.038)

So does this mean every person who meets the criteria is doomed to be taxed on the sale of their West Knoxville home? Not necessarily. If the Health Insurance Reform is repealed or changed in any way, this tax may not apply, since it is not scheduled to take place until 2013. For more information about the 3.8% sales tax on home sales, check out this brochure from the National Association of Realtors ®.

As its June 30, 2010 closing deadline approaches, the federal home buyer tax credit is back in the news.

Unfortunately, the headlines are misleading.

Contrary to what you may have read (or heard), the federal home buyer tax credit has not been extended past June 30, 2010. At least not yet. And here’s why there’s confusion.

Look at these headlines from earlier this week:

• Senate Extends Date On Home-Buying Tax Credit (Philadelphia Inquirer)
• U.S. Senate Approves Extension Of Home Buyer Tax Credit (NASDAQ)
• Senate Approves Home Tax Credit Extension (Reuters)

Now, nothing above is factually incorrect, but each neglects a key piece of the country’s law-making process — it takes more than the Senate to pass a law. For a bill to become a law, it must pass the Senate and the House of Representatives and then it must be ratified by the President.

To date, we’ve only cleared just one of those 3 steps.

This means that the federal home buyer tax credit has not been formally extended. As of now, it’s still in discussion.  Ultimately, though, if the extension does pass, it’s expected to extend the closing date deadline for Knoxville home buyers beyond the original June 30, 2010 date into September 2010.

Homeowners must still have been in contract as of April 30, 2010 to claim up to $8,000 in federal tax credits.