At first blush, these two seem like polar opposites. After all, what does the proposed health care bill being ballyhooed have to do with real estate investing?
I will readily admit I haven’t read the 1900 plus page bill but I have a friend who did. I won’t tell you about the number and size of emails he has sent me but suffice it to say, he has read it. For starters, the IRS is the agency that will enforce its mandates.
Real estate investors are forced to deal with this behemoth on at least an annual basis. Sometimes it is even fun, right? NOT!
If that is the case, imagine having your real estate transaction impacted because of this health bill. For those who say that is far fetched, stay tuned for three provisions that WILL kick you in the butt.
You see, this bill besides pork laden and lopsided is based on a lot of assumptions that will become law. Since the government has already steamrolled over the financial and auto industry and if this bill passes as proposed will roll over the health care industry, it stands to reason that real estate investment isn’t far behind. After all, REI is a cash cow.
These were extracted from the bill by my buddy. My comments on how they could impact real estate investing follow each section.
- Employer Mandate Excise Tax (Page 275): If an employer does not pay 72.5 percent of a single employee’s health premium (65 percent of a family employee), the employer must pay an excise tax equal to 8 percent of average wages. Small employers (measured by payroll size) have smaller payroll tax rates of 0 percent (<$500,000), 2 percent ($500,000-$585,000), 4 percent ($585,000-$670,000), and 6 percent ($670,000-$750,000).
Comment: If the D.C. bullies decide you as a real estate investor are an employer – the IRS can modify their current definition – you will have been hit by an 8% excise tax on every transaction. That would be $4000.00 deducted from each $50000.00 in sales profit. In other words, if you thought you’d walk out of escrow with a 50K check, you were wrong.
- Surtax on Individuals and Small Businesses (Page 336): Imposes an income surtax of 5.4 percent on modified adjusted gross income (MAGI) over $500,000 ($1 million married filing jointly). MAGI adds back in the itemized deduction for margin loan interest. This would raise the top marginal tax rate in 2011 from 39.6 percent under current law to 45 percent—a new effective top rate.
Comment: Another surtax. This one is lower but 5.4 percent of a big number is a big number. To collect, the government would make the escrow officer a tax collector. By the way, this probably doesn’t apply across the board. But, again, it could.
- Individual Mandate Surtax (Page 296): If an individual fails to obtain qualifying coverage, he must pay an income surtax equal to the lesser of 2.5 percent of modified adjusted gross income (MAGI) or the average premium. MAGI adds back in the foreign earned income exclusion and municipal bond interest.
Comment: Look at that, another tax and this is only three of the 1900 pages. Remember, the government is saying you HAVE TO have health insurance. Not a far stretch is requiring all real estate investors to have to have worker’s compensation or some other type of coverage.
IF YOU THINK
If you think any of this is far fetched, do some research on the original purpose of the social security number. It was NEVER to be used as a personal identification number. Honorable intentions didn’t stay honorable. Try getting phone or electric service today without giving up your SSN.
Am I an alarmist? Nope, I prefer to call myself a realist. The camel already has his nose under the tent and is trying to get his fat ass all the way in. That day isn’t far off and you and I will be paying for his room and board.
If you think this post has nothing to do with real estate investing, that’s OK. The government does and may already have yet unveiled plans to include you in their revenue grab.