How will the Patient Protection And Affordable Care Act (“Obamacare”) affect you and real estate?
We have been receiving a number of inquiries about the new 3.8 percent tax that will affect some home sellers beginning in 2013.
As most everyone has read the Patient Protection And Affordable Care Act (“Obamacare”) will affect everyone in the United States one way or another. But some people will be affected more than others. Among these are high-income taxpayers. Starting in 2013, these people will be subject to a brand new Medicare tax on their “unearned income.”
As Realtors we don’t get into the role of offering accounting, tax or legal advice, so the ramifications of this tax is something that individuals should check out with their accountants and lawyers — and who knows, this tax issue could change if new government rulings occur. But that said, in general terms, the new tax, as it presently exists, gives homeowners who have very substantial equity in their homes a strong incentive to sell them in 2012 before the new tax takes effect.
The National Association of Realtors has produced an informative booklet that may be helpful. We are providing a link here for you to a NAR PDF file of this report so you can review and determine how this may, or may not affect you. (If you need a copy of ADOBE Reader software to be able to view this report – here is the link for ADOBE Reader.)
Some highlights from some recent on-line reviews of this tax —
Who is subject to the tax?
Starting in 2013, a 3.8 percent Medicare contributions tax will be imposed on the lesser of either the taxpayer’s net investment income, or any excess of modified adjusted gross income (MAGI) more than $200,000 ($250,000 for married taxpayers filing jointly). Therefore, all single taxpayers with MAGI more than $200,000 and married taxpayers with MAGI more than $250,000 will be subject to this tax. This is a small proportion of the population, but a significant one for the real estate industry and sellers of homes, whose homes fall into this category.
What income is taxed?
The tax applies only to investment income. This includes:
- gross income from interest, dividends, annuities, royalties, and rents other than those derived from an active business
- the net gain earned from the sale or other disposition of investment and other non-business property, and
- any other gain from a passive trade or business.
This includes just about any income not derived from an active business or from employee compensation. And as said above, in general terms, the new tax gives homeowners who have very substantial equity in their homes a strong incentive to sell them in 2012 before the new tax takes effect.
Again, to determine how this tax may, or may not, affect you we encourage you to contact your accountants and attorneys. We cannot offer tax and legal advice about your own particular situation.