What is the 3.8% Tax?

3.8% Tax

You will NOT pay the tax if you sell your home and the gain qualifies for the $250,000/$500,000 principal residence exclusion.

The 3.8% tax has been a topic of heated discussion since it was slipped into the healthcare bill in 2010. The law is set to take effect in 2013, yet many people are still confused as to what exactly will be taxed.

Here’s what you need to know about the 3.8%:

  • The 3.8% tax applies to net investment income — capital gains, net rents (so rent after expenses are deducted), passive income from partnerships, interest, and dividends.
  • For those who are single the tax will apply to the lesser of net investment income or income over $200,000; for those filing jointly, over $250,000. This means if a single person has $20,000 of net investment income and adjusted gross income of $210,000, the tax applies to $10,000 (the portion exceeding $200,000).
  • This tax goes into effect in 2013 and will be reported on the tax return you file in 2014.

 

Below are 4 situations where the 3.8% tax will NOT apply:

  • You will NOT pay the tax if you sell your home and the gain qualifies for the $250,000/$500,000 principal residence exclusion.
  • You will NOT pay this tax if you buy a home, as it will NOT be collected as a transfer tax.
  • Have a million dollars but didn’t earn a cent of it from investment income? You will NOT pay the 3.8% tax.
  • Are you single and made $199,000, or married and made $249,000, and some of that income came from investment income? You will NOT pay the 3.8% tax.

 

Still have questions about how the 3.8% tax will affect you? Contact H&S today.

 
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