The Infamous 3.8% tax Simplified

Beginning January 1, 2013, a new 3.8 percent tax on some investment income will take effect. This new tax was passed by Congress in 2010, with the intent of generating an estimated $210 billion to help fund President Barack Obama’s health care.

Understand that this tax will NOT be imposed on ALL real estate transactions. It will only affect some income from interest, dividends, rents and capital gains. As far as real estate goes, it only comes into effect after the forgivable gain ($250,000 for individuals & $500,000 for couples). Also it will only affect individuals with an adjusted gross income (AGI) above $200,000 ($250,000 for couples). Additionally, the new tax applies to the LESSER of; Investment income amount or the Excess of AGI over the $200,000 or $250,000 amount.

If you still meet all that criteria here’s how it would pencil out;

John and Mary sold their principal residence and realized a gain of $525,000.  They have $325,000 in AGI (before adding taxable gain).  The tax would apply as follows: AGI Before Taxable Gain $325,000 Gain on Sale of Residence $525,000 Taxable Gain (Added to AGI) $25,000 ($525,000 – $500,000) New AGI $350,000 ($325,000 + $25,000 taxable gain) Excess of AGI over $250,000 is $100,000 ($350,000 – $250,000) Lesser Amount (Taxable) $25,000 (Taxable gain) Tax Due $950 ($25,000 x 0.038).

 

For more information send me an email or text for a copy of an 11 page report.

Scott Stephens

(714) 801-6230

http://www.OrangeCountyRealEstates.com