The 3.8% Obama Care Tax from 2013. Will It Impact Your Real Estate Sale?
Note that
this tax WILL NOT be imposed on all real estate transactions, a common
misconception. Rather, when the legislation becomes effective in 2013, 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 tax will fall only
on individuals with an adjusted gross income (AGI) above $200,000 and couples
filing a joint return with more than $250,000 AGI. The tax is not payable at
close of escrow, but is due at the end of the tax year, if applicable.
The new tax applies to the LESSER of
- Investment income amount
- Excess of AGI over the $200,000 (for individual filers) or $250,000 amount (for joint filers)
Here are a
couple of example scenarios:
Capital Gain: Sale of a Principal Residence
J and M sold their principal residence for a gain of $550,000
They have $325,000 Adjusted Gross Income (before taxable gain)
The tax applies as follows :
AGI Before Taxable Gain | $325,000 | |
Gain on Sale of Residence | $550,000 | |
Taxable Gain (Added to AGI) | $50,000 | ($550,000 – $500,000*) |
New AGI | $375,000 | ($325,000 + $50,000 taxable gain) |
Excess of AGI over $250,000 | $125,000 | ($375,000 – $250,000) |
Lesser Amount (Taxable) | $50,000 | (Taxable gain) |
Tax Due | $1,900 | ($50,000 x 0.038) |
* Capital Gains Tax-Free Limit Filing Jointly
If J and M had a gain of less than $500,000 on the sale of their residence, none of that gain would be subject to the 3.8% tax. Whether they paid the 3.8% tax would depend on the other components of their $325,000 AGI
Sale of a Second Home with No Rental Use
The Bridgers own a vacation home that they
purchased for $275,000. They have never rented it to others. They sell it for
$335,000. In the year of sale they also have earned income from other sources
of $225,000.
The tax applies as follows:
Gain on Sale of Vacation Home | $60,000 | ($335,000 – $275,000) |
Income from Other Sources | $225,000 | |
New AGI | $285,000 | ($60,000 + $225,000) |
Excess of AGI over $250,000 | $35,000 | ($285,000 – $250,000) |
Capital Gain | $60,000 | |
Lesser Amount (Taxable) | $35,000 | (AGI excess) |
Tax Due | $1,330 | ($35,000 x 0.038) |
Note: If the Bridgers rent the home for 14 or fewer days in the course of a year, the rental income is non-taxable and the results in the year of sale will be the same as shown
above. If the rental period exceeds 14 days in any year, then the rental income
(less expenses) will be taxable and AGI would include not only the capital gain, but also some amount that is depreciation recapture.
Source:
Realtor.org/healthreform
Disclaimer: This educational article is intended to provide you helpful information and
useful examples, and not to provide tax advice. As always, it is best to consult
your tax professional for your specific circumstance.
Author Ranjana Shreedhar, Realtor:
I am Your Realtor for Your Real Estate Success. If you are planning to Sell your house, pricing it right is the most important first step. Call me for a no-obligation evaluation of your home, at 408-861-8026.
My goal is to make you successful through a quick sale of your home bringing my core price setting skills, marketing skills, integrity, and exceptional service!
If you are in the market to Buy your dream home, I can help you find the right home, and be there for you throughout the transaction.
If
you or any of your friends are in the market to sell or buy a home in
the Bay Area, I'd be delighted to help you or your friends, as the case
may be, achieve your real estate goals with exceptional service, high
integrity, and market savvy.
Contact me through Email or on phone (408)861-8026 or through the handy contact form on this page.
2 comments :
Right article at the right time
Thank you Nattu!
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