The new Health Care Law scheduled to go into effect in 2013 will certainly affect many Americans. While the media has covered some of these, there has been less coverage of one aspect of this new Law. This aspect may affect higher wage earners who sell their home and realize capital gains (profit).
Most are aware that under the new Health Care Law, single taxpayers earning in excess of $200,000 of Adjusted Gross Income (AGI) or married taxpayers filing joint returns earning in excess of $250,000 will be required to pay an additional 3.6% Medicare tax surcharge on all interest, dividends, royalties and etc.
However, some may not be aware that this 3.6% Medicare tax surcharge will also apply to all capital gains. The surcharge will be assessed on stock & bond sales, mutual fund gains, and may be assessed on the sale of a principal residence appreciation beyond the first $500,000 of gain.
For example: John and his wife earn $275,000 a year. John sells his home and nets a $1,000,000 gain. Under current tax laws, the first $500,000 gain is tax exempt. In 2013, the Health Care Law will require John to pay the prevailing tax rate on the remaining $500,000 gain plus the tax surcharge on top of the first tax. There are no exemptions on second homes or vacation homes, which are paid at the prevailing capital gain tax rates with the addition of the new 3.6% tax surcharge.
In areas where home prices are typically higher, resulting in higher gains, such as the Baltimore-Washington metropolitan area, many home sellers may see themselves affected by this new law. Appropriate tax advice should be sought before selling so that you will understand the implications of the home sale and resulting taxes.
Tax information provided by Sandy Botkin, CPA, Esq, and President of Tax Reduction Institute
