3.8% Tax to go into Effect in 2013 Applies to Investment Income for Upper Income Taxpayers
Wednesday, February 29, 2012
Incorrect information and rumors abound online regarding the so-called "3.8% Medicare Tax."
The 3.8% Tax is NOT a Transfer Tax on Real Estate Sales
Here is NARs explanation of the tax that will go into effect in 2013:
The health care legislation enacted in 2013 included a new tax that was designed to affect upper income taxpayers. The 3.8% tax is imposed ONLY on those with more than $200,000 of Adjusted Gross Income (AGI) ($250,000 on a joint return). The tax applies to investment income, defined as capital gains, dividends, interest payments, and, for those who own rental property, net rental income. These items are all included in an individual's AGI. A formula will determine what portion, if any, of these types of investment income would be subject to the tax.
The tax is NOT a transfer tax on real estate sales and similar transactions. Not long after the tax was enacted, erroneous and misleading documents went viral on the Internet and created a great deal of misunderstanding and made the tax into something far more draconian than the actual provisions.
The new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax.
REALTORS® should familiarize themselves with the tax, but should not advise their clients about the application of the tax. The amount of tax will vary from individual to individual because the elements that comprise AGI differ from taxpayer to taxpayer.
The 3.8% Tax Real Estate Scenarios & Examples Download brochure from NAR
Source: National Association of REALTORS®
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