Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
There is a provision for a 3.8% tax on real estate sold beginning in a couple years as part of health care bill! I did try to verify with snopes. It was confusing and only discussed in terms of owner occupied sale. Didn't address investor owned property. Anyone aware of this new change as part of the "health care bill"?? Could add additional costs to sale. With commission, title, etc, you might be looking at 15% of proceeds. Rich
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
16y
When I first heard of this a month or so ago, I was under the impression that it was a tax on the profit from the sale. That is what the "Snoops" report seems to support.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
16y
JScott- both examples referred to in your link were on owner occupied homes.
Any properties (non owner occupied)sold that caused your income to exceed 125K would be taxed at 3.8% for "medicare tax". 250K for married.(Whatever the heck real estate has to do with medicare!).
The 250K is not indexed, so as more individuals reach that level they will feel the pinch. Does all this look accurate? Rich
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
16y
It is my understanding that this will affect any home sales. There are likely to be many rule changes over the coming years that may affect this though.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Originally posted by Rich Weese:
JScott- both examples referred to in your link were on owner occupied homes.
From my reading, it has nothing to do with owner-occupied homes, per se. It has to do with investment income, whether that income is from an owner occupied real-estate sale or some other investment source (assuming you "qualify" as a high-income earner, that is)...
Real estate sales are just one example of the types of income that high-earners could get taxed on...there are certainly plenty of others...
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Well, I went to both sites, neither explains or shows the language of the bill and while many read such articles as the gospel truth and see no bias at all, it's obvious to me that it's anti-health care bill, so such writings probably are written with an agenda, that's clear.
As to what the tax will be extended to, it's not clear to me. While you have always been responsible to pay your medicare/social security tax on earnings, many evade the tax as independent contractor types if it's not taken out of a check, so that's nothing new. I can see that the investment income is a new twist, but is it on the investment income over 250K or as implied from the first dollar, just guessing, I'd say it would begin at 250K and up, but that's a guess, I don't know.
What is written there I'm sure is exagerated, even a Democrate knows that taxing a primary residence sale like that would impact home sales. If so, go the installment route and pay any tax over time.....instead of showing a 400K sale at 15K (to place an emphisis on the dollar amount) what would it be on the average sale, in my area it would be on about 125K, or roughly 3.5K. Paid out over a five year installment, might be 50 bucks a month. I agree that's still alot, but let's look to at the total tax liability of all assessments, that's what I'm most interested in, the net change after all the little fees, assessments and taxes are calculated on the total income, what will that figure be? Could be less than we paid in the 90s.
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
16y
The Tax Foundation blog incorrectly calls this tax a capital gains tax. It is really a Medicare surcharge on investment income (which also includes dividends, interest, and royalties) levied on high income tax payers.
Under the current definition, a high income taxpayer earns more than $200K if filing single or $250K if married filing jointly.
The blog also incorrectly reported the tax on investment income as 3.8%. Not true, but the total effect of all the proposed tax changes for the high-income earner totals 3.8%.
The first portion of the new medicare surcharge is a 0.09% increase in the medicare tax high income taxpayers will pay on earned income. Not quite sure whether the surcharge applies to all earned income or only that income that exceeds the high-income threshhold. We will know precisely when the employers tax guides are updated to reflect this new payroll tax.
The second part of the medicare surcharge is a 2.9% tax on investment income earned by the high-income taxpayer.
While I have no idea how the tax in investment income will be collected, I doubt it will be collected from the proceeds of sale at the settlement table. I strongly suspect it will be collected on the 1040 as an additional tax on the total amount of investment income (reported on Schedule B, Schedule D, and Schedule E) provided the taxpayer's AGI is over the $200K/$250K high-income threshhold.
Just as the medicare tax is applied to all earned income, I suspect the medicare surcharge will be applied to all investment income if the AGI qualifies the taxpayer a a high income earner.
This is only speculation for now, we will just have to wait to see whether the new Congress changes or repeals this part of the law, and how the IRS implements it.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Thanks, guess I had the right concept, wrong amount....that makes more sense, ....I'll save more than that on the benefits....that's fine, thanks for the clarification! And by the way, I don't know where that "e" on democrat came from! LOL
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
15y
Just to clarify, this new tax applies to investment income not just specifically to real estate profits.
Any references to the new surcharge being applied to owner occupied home sales are wrong (at least as a blanket statement). Under current tax law, Section 121 of the tax code allows homeowners, who have both owned and occupied their primary residence for fwo of the five years prior to sale, to exclude up to $250K per taxpayer from capital gains (investment income in other words). This excluded income does not even appear on the tax return, so it won't be subject to the new Medicare surcharge.
Qualified homeowners, even the high income earners, will still have this exclusion available unless Congress changes the tax code before the new rules go into effect.
Does this apply to rental income too? The article makes it seem like it does unless you are a real estate professional.
Yep, this will apply to net rental income. This is a 3.8% Medicare tax on “net investment income.” Net rental income is subject to the Medicare tax unless the rent is derived in the ordinary course of a trade or business.
I wrote a blog post explaining the law back in September 2010. Shoot me a PM if you're interested in the link.