An often less talked about portion of the massive legislation known as ObamaCare is how the government is going to pay for it. The great majority of the bill pertains to matters that have nothing to do with healthcare. It may surprise you, but some of the needed revenue will come from the sale of real estate – kind of.
Effective January 1, 2013, a new 3.8% tax on investment income will be imposed. This tax does not affect all real estate transactions, only when certain conditions are met.
Here’s what you need to know from a capital gain/real estate perspective:
- Is your AGI greater than $200,000? The 3.8% tax is on the LESSER of your investment income amount or the amount in excess of Adjusted gross income (AGI) over $200,000 (Individual) or $250,000 (Couple). Therefore, if your AGI (which includes real estate sale gains) is less than $200k (or $250k) you are not affected by the new tax.
- Your AGI will include the sale of investment income (or real estate). Say you make $100k salary and sell your vacation home for a profit of $225k – your AGI will be $325k and you’ll be subject to the 3.8% tax on $125k ($325k-200k).
- You get a $500k deduction for the sale of your primary residence. If you sell your primary residence for a gain of $550k, you get to deduct the first $500k and are left with a gain of $50k to be added to your AGI.