Income Taxes and Real Estate

Income Taxes and Real Estate

What is the new 3.8% tax and how does it affect sellers?

A new income tax provision started on January 1st, 2013, that may affect some sellers of real estate.  The tax is 3.8% of “net investment income”, if the sellers fit into certain categories:

1.     Joint income tax filers with adjusted gross income of $250,000 or more;
2.     Single income tax filer with adjusted gross income of $200,00 or more;
And
1.     Joint income tax filers with more than $500,000 profit on the sale of the principal residence;
2.     Single income tax filer with more than $250,000 profit on the sale of the principal residence;

Or

3.     Capital gain on the sale of investment real estate.
The new 3.8% tax applies to the LESSER of:

a.     The investment income amount or b. The excess of adjusted gross income over the $250,000 (joint) or $200,000 (single).

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 principal residences.  The sellers of investment properties will be taxed on investment income that exceeds the income thresholds above.  Seehttp://www.realtor.org/small_business_health_coverage.nsf/docfiles/government_affairs_invest_inc_tax_broch.pdf/$FILE/government_affairs_invest_inc_tax_broch.pdf for further explanations and examples.

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John Thomas and The HomeSalesForce.com Team
Real Estate Broker
RE/MAX Around Atlanta
(770)650-9300

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