You may be wondering – Does the 3.8 Obamacare tax affect me? This 3.8% real estate tax has been the subject of many well-intended, but inaccurate emails since 2010. Admittedly, the thought of every real estate transaction being impacted by a 3.8% tax IS scary! If you never got one of these emails, you should consider yourself lucky or be glad your spam filter is working. 🙂 For the people who did get this email, many of the “facts” were wrong. Big surprise!
So we asked Emily Broun with Neel and Robinson to give us a quick overview so we could relay the truth about its implications.
What is it?
When the Affordable Care Act (more commonly known as ObamaCare) was passed, one of the provisions created a new income tax that started on January 1, 2013. Specifically, this tax is 3.8% of “net investment income” if the sellers fit into certain categories.
How does it affect sellers?
The 3.8% tax occurs if the sellers are:
- Joint income filer with adjusted gross income of $250,000 or more;
- Single income tax filer with adjusted gross income of $200,000 or more;
AND
- Joint income tax filers with more than $500,000 profit on the sale of the principal residence;
- Single income tax filer with more than $250,000 profit on the sale of the principal residence; OR
- Capital gain on the sale of investment real estate.
The 3.8% tax applies to the LESSER of:
- The investment income amount OR
- The excess of adjusted gross income over the $250,000 (joint) or $200,000 (single)
(Sounds like a call to your accountant may be in order to decipher these 2 points.)
How will it affect me?
According to the National Association of Realtors, this new tax will not affect many home sellers, based on the income threshold and the gain threshold on principle residences. The sellers of investment properties will be taxed on investment income that exceeds the income thresholds above. Click here for Real Estate Scenarios & Examples.
