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Archive for March, 2013

What is the new 3.8% tax on homes and how does it affect sellers?

Sunday, March 3rd, 2013

 

NancysNewHomes

Money City

A new income tax provision was started on January 1st, 2013, that may affect some sellers of real estate.  The tax is 3.8% of “net investment income”, if the sellers fit into certain categories:

1.     Joint income tax filers with adjusted gross income of $250,000 or more;

2.     Single income tax filer with adjusted gross income of $200,00 or more;

and

1.     Joint income tax filers with more than $500,000 profit on the sale of the principal residence;

2.     Single income tax filer with more than $250,000 profit on the sale of the principal residence;

OR

3.     Capital gain on the sale of investment real estate.

The new 3.8% tax applies to the LESSER of:

  1. a.     The investment income amount, or b. The excess of adjusted gross income over the $250,000 (joint) or $200,000 (single).

According to the National Association of Realtors, this new tax will not affect many home sellers, based on the income threshold and the gain threshold on principal residences.  The sellers of investment properties will be taxed on investment income that exceeds the income thresholds above.  See http://www.realtor.org/small_business_health_coverage.nsf/docfiles/government_affairs_invest_inc_tax_broch.pdf/$FILE/government_affairs_invest_inc_tax_broch.pdf for further explanations and examples.