Steven Keefe, Broker/Owner
Coldwell Banker Sky Ridge Realty
Beginning January 1, 2013, a new 3.8 percent tax on some investment income will take effect. Fortunately, it will not affect all real estate transactions. It is a complicated tax that targets certain transactions. It was passed in 2010 by Congress with the intent of generating $210 billion to help fund Obamacare.
As I said, it will not be imposed on all real estate transactions, which is a common misconception. The new tax will be imposed on some but not all income from interest, dividends, rents and captital gains. The tax will fall only on individuals with an adjusted gross income above $200,000 and couples filing a joint return with more than $250,000 AGI.
A large number of the sales in our market are second homes. Pursuant to the new tax, it is a complicated calculation, but in some instances the 3.8% tax may be applied to the gain at the time fo sale. Sellers are strongly urged to contact their tax professional to discuss with them the potential effect the new tax may have on them.
This new tax was never introduced, discussed, or even reviewed until just hours before the final debate on the massive health care legislation began. It took a year for the legislation to be enacted. Congress again foolishly attached the real estate transaction with the responsiblity to pay for this massive social program. The real estate industry agressively opposed this new tax that will affect some homeowners, but unfortunately was unsuccesful with the legislation passing on a largely party line vote.
The new tax is sometimes called a "Medicare tax" because the proceeds from it are dedicated to the Medicare Trust Fund. That Fund is scheduled to run dry in only a few more years, so this tax is a means of extending its life.
National Association published a online handbook giving multiple examples of how the new tax may affect homeowners, if you would like a copy of the handbook. Email me a request with 3.8% Tax in the subject line and I will forward it to you. Use email@example.com as the email.