As if we weren't already exercising ultra-caution in the manner and timing of our property purchases and sales, Uncle Sam has put out another taxation land mine to avoid. Even though it's nothing but bad news, as usual, being forewarned is being forearmed, so here is a brief primer on the new Patient Protection Affordable Care Care Act, and how it may be funded in part by the sale of your home.
From Sandy Botkin, CPA:
There is a BIG nasty surprise awaiting a number of people starting in 2013 that has NOT been mentioned by the media. Under the new Patient Protection Affordable Care Act (PPACA), single taxpayers who earn over $200,000 of Adjusted Gross Income (AGI) or married taxpayers filing joint returns who earn over $250,000 get hit with a major surprise. They will have to pay a new 3.8% Medicare surcharge on all interest, dividends, royalties etc. This seems to be covered by the media. What has NOT been mentioned is that this Medicare tax also applies to capital gains. Thus, it applies to stock and bond sales, mutual fund gains and sales etc. In addition, it could even apply to the sale of your principal residence on all appreciation beyond the first $500,000 of gain.
Example: John and his wife earn $275,000 a year. John sells his home for a $1,000,000 profit. He can avoid tax on the first $500,000 of gain. John not only pays capital gains tax on the remaining $500,000 but also pays an additional 3.8% surcharge. If John were selling his second home, there is no exclusion. Thus, he pays this tax on all gain.
This is a major bomb for those of you with substantially appreciated real estate. You might want to consider selling your home or second home before 2013.
See this and more on Lake Conroe Realty Now with Lauri Kent Financial News.
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