Don’t you just love the internet? You can find all kinds of information and interesting stuff. But often some of the information you find may not be true…
Such as the rumor floating around for some time about a new tax when you sell real estate. I even had a client ask me about this. There is some truth and some stuff that is well…wrong!
Beginning January 1, 2013, a 3.8% tax on some real estate investment income will take effect.
There is neither a real estate “sales tax” nor a real estate transfer tax under any federal law. The 2010 health care legislation did create a new 3.8% tax, but it applies only to some taxpayers. Please notice I said SOME.
You need to know that this tax WILL NOT be imposed on all real estate transactions. Instead it may impose a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The new 3.8% tax will apply to the “unearned” income of “High Income” taxpayers.
Who is a “High Income” Taxpayer?
Well I would say most people will not fall into this category. This tax will only affect people with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.
What is “unearned” net investment income?
Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses if the investor is not an active participant in the business. The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.)
The new tax applies to the LESSER of:
Investment income amount
Excess of AGI over the $200,000 or $250,000 amount
Who to Blame
Any rumors that this new tax has to do with Obamacare is false. Not saying Obamacare is good or bad. Just saying that this 3.8% tax was never introduced, discussed or reviewed until just hours before the final debate on the massive health care legislation began. That legislation was enacted on March 23, 2010, more than a year after the health care debate began. This new tax was put forward after Congress was unable to agree on changes to current law that were sufficient to pay for the proposed changes to the Medicare program and increased subsidies to individuals and businesses.
Now I am not a tax expert and suggest you talk with your tax professional. But do not believe everything you read on the internet. Especially during an election year.
However that story about the spider goats is real…