3.8% Tax Real Estate Scenarios & Examples
Will it affect your business in 2013?
National Association Of Realtors NAR put together a brochure explaining 8 examples how this bill beginning January 1, 2013, a new 3.8 percent tax on some investment income, will effect you.
Since this new tax will affect some real estate transactions, it is important for REALTORS® to clearly understand the tax and how it could impact your clients. It’s a complicated tax, so you won’t be able to predict how it will affect every buyer or seller.
Helpful Hint #1
Some investors may consider selling dividend generating investments and moving to tax-free investments since they will not impacted by the new law.
Starting in 2013, impacted investors will need to manage not only their adjusted gross income but also their investment income in order to avoid or minimize this tax.
The new tax raises more than $210 billion (over 10 years), representing more than half of the total new expenditures in the health care reform package. NAR expressed its strongest possible objections, but the legislation passed on a largely party line vote.
Helpful Tip #2
Talk To Your Accountant
Tax Increase: $123 Billion This is a new, 3.8 percentage point surtax on investment income earned in households making at least $250,000 ($200,000 single). This would result in the following top tax rates on investment income:
Courtesy Americans for Tax Reform
The table above also incorporates the scheduled hike in the capital gains rate from 15 to 20 percent, and the scheduled hike in dividends rate from 15 to 39.6 percent.
The new tax is sometimes called a “Medicare tax” because the proceeds from it are to be dedicated to the Medicare Trust Fund. That Fund will run dry in only a few more years, so this tax is a means of extending its life. estimated $210 billion to help fund President Barack Obama’s health care and Medicare overhaul plans — could be relevant to your clients.
Understand that this tax WILL NOT be imposed on all real estate transactions,
a common misconception. Rather, 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.
Rental Income: Income Sources Including Real Estate Investment Income
Hank has a “day job” from which he earns $85,000 a year. He owns several small apartment units and receives gross rents of $130,000. He also has expenses related to that income.
Consult your accountant. 😉
Happy Selling! Tom