3.8% Tax On Housing? 10 Things You Need To Know
1.) When
you add up all of your income from every source, and that total is less than
$200,000 ($250,000 on a joint tax return), you will not be subject to this tax.
2.) The
3.8% tax will NEVER be collected as a transfer tax on real estate, so you will
never pay this tax at the time you purchase a home or other investment
property.
3.) You
will never pay this tax at settlement when you sell your home or investment.
Any capital gain realized at settlement is just one component of that year’s
gross income.
4.) If
you sell your principle residence, you will still receive the full benefit of
$250,000 (single tax return)/$500,000 (married filing joint tax return)
exclusion on the sale of that home. If your capital gain is greater than these
amounts, then you will include any gain above these amounts as income on your
Form 1040 tax return. Even then, if your total income (including this taxable
portion of gain on your residence) is less than the $200,000/$250,000 amounts,
you will NOT pay this tax. If your total income is more than these amounts, a
formula will protect some portion of your investment.
5.) The
tax applies to other types of investment income, not just real estate. If your
income is more than the $200,000/$250,000 amount, then the tax formula will be
applied to capital gains, interest income, dividend income and net rents (i.e.,
rents after expenses).
6.) The
tax goes into effect in 2013. If you have investment income in 2013, you won’t
pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014. The
3.8% tax for any later year will be paid in the following calendar year when
the tax returns are filed.
7.) In
any particular year, if you have NO income from capital gains, rents, interest
or dividends, you’ll never pay this tax, even if you have millions of dollars
of other types of income.
8.) The
formula that determines the amount of 3.8% tax due will always protect $200,000
($250,000 on a joint return) of your income from any burden of the 3.8% tax.
For example, if you’re single and have $201,000 income, the 3.8% tax would
never be imposed on more than $1,000.
9.) It’s
true that investment income from rents on an investment property could be
subject to the 3.8% tax. But, the only rental income that would be included in
your gross income and therefore possibly subject to the tax is net rental
income: gross rents minus expenses like depreciation, interest, property tax,
maintenance and utilities.
10.) The tax was enacted along with the health care
legislation in 2010. It was added to the package just hours before the final
vote and without review. The National Association of REALTORS strongly opposed
the tax at the time, and remains hopeful it will not go into effect. The tax
will no doubt be debated during the upcoming tax reform debates in 2013.
Please contact your Broker at Breckenridge Associates Real Estate to learn more about the incredible opportunities available today in Breckenridge and Summit County, Colorado. 800.774.7970 or 970.453.2200. Click here for the latest news about Breckenridge Real Estate.
Please contact your Broker at Breckenridge Associates Real Estate to learn more about the incredible opportunities available today in Breckenridge and Summit County, Colorado. 800.774.7970 or 970.453.2200. Click here for the latest news about Breckenridge Real Estate.
Source: National Association of REALTORS and The KCM Blog,
September 25, 2012
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