Almost everyone I talk with is confused about the new 3.8% Investment tax that becomes effective January 2013 or isn’t even aware of it.

What it is not  a straight up tax on proceeds from any real estate sales.  In addition to the fees imposed when selling a home, many thought they would be charged another tax on the sale of their home. Interest, dividends, rents and capital gains may be affected. Any individual with an adjusted income above $200,000 and couples with an adjusted income of $250,000 right now are the only taxpayers that may be paying the tax.

Looking to fund the Obama health care plan, this tax was added at the last minute with no time for discussion or debate, and that is probably why most people are not aware of it. Its goal is to raise over $210 billion over a ten year span, and placed in a Medicare Trust Fund.

This tax applies to the lesser of investment income over the AGI. As an example:

Capital Gain: Sale of a Principal Residence
A couple sold their principal residence and realized a gain of $525,000. They have a $325,000 AGI before adding taxable gain. The tax:

  • AGI     $325,000
  • Gain on Sale of Residence  $525,000
  • Taxable Gain $25,000 ($525,000 – $500,000)***
  • New AGI = $350,000 ($325,000 + $25,000)
  • Excess = $100,000 ($350,000 – $250,000)
  • The lesser amount is the Taxable Gain of $25,000

Amount of tax is $950 ($25,000 x 3.8%)

***Right now the profit from the sale of your home of $250,000 for singles and $500,000 for those filing joint tax returns is still in place.

There are other factors that may affect the amount of tax due. This is a simplified example. For more examples, you can download this brochure put together by the National Association of Realtors.

You should always consult your CPA as every situation may be different.

Source: National Association of Realtors






About Linda Urbick Linda

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