Residential Sellers | New Federal Tax on Investment Income

Real Estate Agent with Compass
On January 1, 2013, a new 3.8% Federal tax on the investment income of individuals, estates, and trusts is scheduled to come into force. The tax was enacted in 2010 as part of the health care legislation.

This new tax will be imposed on interest, dividends, annuities, royalties, rents, capital gains, and certain other items.  The tax will be in addition to all otherwise applicable Federal, state, and local income, transfer, and other taxes.

This post focuses on the tax's application to owner-occupied residential property (including single-family homes, condominiums, and cooperative apartments).1   Although the tax is complicated, here are a few simple rules to guide you.

  • In general, if an individual's home is sold, the 3.8% tax will be imposed on the gain "recognized" by the seller (and not on the gross purchase price).

  • As you are aware, a limited portion of an individual's gain on the sale of a primary residence (generally, $250,000 for a single individual, and $500,000 on a joint return) may not be taxable for ordinary Federal income tax purposes.  The same rule applies for purposes of the new tax.

  • If the seller's "adjusted gross income" (with certain modifications) is below specified levels (generally, $200,000 for a single individual, or $250,000 on a joint return), the seller may be exempt from the new tax.

Each seller should consult with a qualified tax advisor to determine the application of the new tax, as well as the application of all other tax rules, to the seller's particular circumstances.

1 Different rules may apply to other types of property, including second homes and investment properties.
 Source: REBNY Real Estate Board of New York

Contact me  ASAP

to sell your home before January 1, 2013.



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Jeff Hoover
Exit Realty "The Tri-State Group" - Middletown, DE
Look For Your Home Today

Thank you for the information.   I will have to look into this further. 

Aug 22, 2012 12:16 PM #1
Raj Singh
Better Homes and Gardens_ MASON-McDUFFIE Real Estate - Fremont, CA
I think you are right , contact your CPA or your Taxman. We realtors really cannot advise clients regarding tax implications. Since computing a 'Gain' it self will require to deduct 'Cost' . CPA can advise what all can be considered as cost to compute the actual gain.
Aug 22, 2012 12:22 PM #2
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

It is a complicated issue for the consumer.  I will effect many and the consumer need to consult their CPAs on.

Aug 22, 2012 12:24 PM #3
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Thank you for this. I feel informed and briefed very well! Well done! :)



Aug 22, 2012 01:54 PM #4
Dale Terry
Yadkinville, NC

Mitchell, is it true there is a sales tax on NY real estate either by the state or say NYC?  If so, what is it?  I thought I read an article about it.

Aug 22, 2012 08:23 PM #5
Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning Mitchell. Great, a new tax related to home ownership. Ain't life great. Seriously, good information. Thanks for sharing.

Aug 22, 2012 09:57 PM #6
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Great explanation Mitchell.  This tax has been one of the most misunderstood and the subject of lots of spam e-mails.

Aug 22, 2012 09:58 PM #7
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Jeff, thank you for you comment.

Raj, Thanks, It can be quite complicated computing gains.

Tim, Thanks, It will affect many who bought years ago and have large gains.

Laura, Thank you. I appreciate your comment.

Dale, There is NY state and NYC transfer tax, NY state mortgage recording tax and NY state mansion tax. No sales tax although the mansion tax (1% of sale price when $1million or more) may be considered a type of sales tax since $1million will rarely buy a mansion in NY anymore. Many coops and condos in NYC also have a private transfer fee known as a "flip tax" but that money goes into the coop or condo's reserve fund.

Sheila, Hopefully we can sell a lot of homes with large gains before the end of the year and save our clients a lot of money,-)

Gabe, Yes I have seen the spam emails. The tax for owner-occupied residential property is for gains above the $250/$500K primary residence exemption for those with incomes above $200/$250K.

Aug 22, 2012 10:02 PM #8
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Mitchell J Hall

Lic Associate RE Broker - Manhattan & Brooklyn
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