What is the Obama-Care 3.8% Investment Income Tax?
Deep within the bowels of the Affordable Health Care Reform Law which was popularly known as Obama Care was a provision to procure additional revenue from certain homeowners who sold their homes above certain price points. This tax is more properly called the Medicare Tax.
The new 3.8% tax will apply to the “unearned” income of “High Income” taxpayers. The new Medicare Tax on unearned income will take effect January 1, 2013. Proceeds from the tax will be allocated to shoring up the Medicare fund.
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.
This tax does not affect most Tulsa home sellers or home buyers. Therefore this Medicare Tax is not a sales tax at all, because it will not be applied to everyone — at least not hypothetically until inflation puts almost everyone into the “high-income” bracket. This is a long-term possibility since this Medicare tax does not adjust for inflation. As time passes, more and more midtown Tulsa home-owners will find themselves having to pay the Medicare Tax when they sell their midtown Tulsa homes.
This tax will depend on each individual’s or family’s mix of all the elements of their income. There are many steps in the computation process for this tax, and so only a trained tax professional will be able to advise homeowners regarding their tax liability under this law.
The Medicare Tax will affect many high-income families in midtown Tulsa when they sell their homes after January 1, 2013. It will all depend on which tax bracket the last dollar of income falls into. Click here to find 2010-2013 Marginal Tax Rates.
Here is a brief exploration of how the Medicare Tax will affect “high-income” home owners with certain types of investment income:
- The new tax would apply only to households with adjusted gross incomes (AGI) above $200,000 for individuals or $250,000 for couples filing a joint return.
- The current capital gains tax law allows individuals to exclude up to $250,000 of profit from taxation, and $500,000 for married couples when selling a personal residence. The tax would only be imposed on the gain over the threshold amount.
- The 3.8 percent tax would apply to whichever amount is less: an individual or married couple’s total investment income or the amount that their AGI exceeds the high-income threshold (of $200,000 for individuals or $250,000 for married couples).
- For example, a married couple has an AGI of $325,000. They purchased a home in California many years ago for $350,000 and sold it this year for $900,000, making a profit of $550,000. After excluding $500,000 from their gain of the sale, they are left with $50,000 investment income. Since their AGI is $75,000 over the married threshold amount the lesser amount of $50,000 would be subject to taxation – at 3.8 percent they would owe $1,900.
The 3.8 percent tax will take effect beginning January 1, 2013.
Perhaps you may want to consider selling your midtown Tulsa home now while there are many buyers out in force taking advantage of record-breaking low mortgage rates.
Call Debbie Solano today at 918-724-8201 to list your midtown Tulsa home.
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