It’s a complicated tax, so we won’t be able to predict how it will affect every buyer or seller. But it helps
to understand the facts as explained in a recent NAR article:
- The 2010 health care act did create a new 3.8 percent Medicare tax, but it applies only to a limited group of high-income taxpayers and it's on a variety of "unearned" or investment income over certain thresholds, including the sale of real estate.
- The new tax is sometimes called a “Medicare tax” because the proceeds from the tax are to be dedicated to the Medicare Trust Fund, which is threatened to run out of money without additional
revenue or cuts.
- "Single" taxpayers will be subject to the new health care tax if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than
$250,000 will also be subject to the new tax.
- Unearned income is the income that comes from investing capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses if
the investor is not an active participant in the business.
- When you add up all of your income from every possible source, and that total is less than $200,000 for an individual ($250,000 on a joint tax return), you will not be subject to the 3.8 percent Medicare tax.
- The 3.8 percent tax will never be collected as a transfer tax on real estate of any type, so you’ll never pay this tax at the time that you purchase a home or other investment property.
- It's also important to understand that even if a home seller is subject to the new 3.8 tax, it will not
necessarily result in additional taxes from selling a home, due to the capital gains exclusion on primary homes.
Individuals can exclude up to $250,000 in capital gains from the sale of their primary residence (or $500,000 for a married couple) as long as they have owned the home and lived in it for a minimum of two years.
If someone is subject to the tax, it would only be applied to the gains above that level if there are
The new 3.8 percent Medicare tax is complicated and everyone's situation is different. As always, we remind home sellers to consult their tax specialist before making any decision and to understand what's best in their situation.
For more information on the tax and its impact on real estate, please visit the NAR website.
While the new health care tax will impact some sellers, it's just one of many things to take into consideration when deciding whether to sell your home. No one can tell you for sure what to do, but one thing that's certain is that there are a lot of eager, well-qualified buyers out there looking for homes right now. We just don't have enough good homes for sale in many neighborhoods to meet the demand.
So if you've been thinking about selling, now may be a very good time. I'm ready to help you do just that. Please contact me to talk more about how you can get the most from your home sale.
Mark Bruno - Monterey Peninsula Home Team
2015 Top 100 Coldwell Banker Agents in Northern CA
Mark and his real estate team all live, work and play on the Monterey Peninsula including the cities of Carmel, Carmel Valley, Marina, Monterey, Pacific Grove, Pebble Beach, Seaside and the Highway 68 Corridor.
Thinking of living on the Monterey Peninsula? Check out this video we made of the place we call home.
For professional real estate services in and around the Monterey Peninsula on California's central coast, give Mark Bruno a call at (831) 313-2BUY.