On January 1st of this year the Affordable Care Act, “Obamacare”, went into effect. Included in the mechanics of the law is a Medicare Tax which will tax 3.8% of the Net-Investment Income of certain home sales.
While the topic of whether or not it should have been imposed is a hot button issue, that article is saved for another place and time. For now, the tax is here to stay and hopefully this article will help shed some light on whether it will impact you and your home sale.
Will this impact me?
1) Adjusted Gross Income (AGI) – First important note is that the new tax only applied to single tax filers earning over $200,000 and couples earning over $250,000. So right away, we realize that around 96% of America will not be affected by this new tax. For the other 4%, the “high-earners”, continue on.
2) Capital Gains Exceed the Exclusion – On primary residence sales, only gains over $250,000 for single filer and $500,000 for joint filers will incur the new tax. While not likely for many in today’s market, some homeowners that have held on through the last 10 years or so my have this kind of equity in their home and will need to be aware a potential tax (assuming they make over $200,000/$250,000 AGI).
Really, I see this impacting sales of second/third homes and investment properties, more than impacting average individuals as the capital gains exclusion does not apply to second/third/investment homes or commercial properties. Assuming the seller still makes over $200,000/$250,000, investors would incur the 3.8% tax on the net investment profit, no matter the amount.
For examples and scenarios of this new tax and how it could impact you, visit Realtor.org here for some breakdowns. For a complimentary home evaluaiton, please contact us anytime. We look forward to the opportunity to speak with you about the Downtown San Diego Real Estate market and help you find your next home. ')}