Beginning January 1, 2013 a new 3.8 percent tax on some investment income
will take effect and will affect some real estate transactions; it’s a complicated tax and you will want to consult your own tax preparer for complete information & advice.
Who it Applies To:
• Individuals with adjusted gross income (AGI) above $200,000
• Couples filing a joint return with more than $250,000 AGI
• Types of Income: Interest, dividends, rents (less expenses), capital gains (less capital losses)
• The new tax applies to the LESSER of
• Investment income amount
• Excess of AGI over the $200,000 or $250,000 amount
Capital Gain: Sale of a Principal Residence
John and Mary sold their principal residence and realized a gain of $525,000.
They have $325,000 Adjusted Gross Income (before adding taxable gain).
The tax applies 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 $100,000 ($350,000 – $250,000)
Lesser Amount (Taxable) $25,000 (Taxable gain)
Tax Due $950 ($25,000 x 0.038)
If John and Mary had a gain of less than $500,000 on the sale of their residence,
none of that gain would be subject to the 3.8% tax. Whether they paid the 3.8% tax
would depend on the other components of their $325,000 AGI.