What Is The New 3.8% Real Estate Tax – Or Is There One?

There has been a lot of buzz going on about the new 3.8% real estate tax that goes into effect January 1, 2013. This tax is tied to the Obama Health Care plan with the funds designated to go to the Medicare Tax Fund and is being referred to as the “Medicare Tax”. While this tax will not affect most people, the ones affected should be aware of it and prepare.

Overview of the New Real Estate Tax

I am no tax expert and certainly not a health care expert. In trying to gain understanding I ran across information published by the National Association of Realtors on this subject.
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Speaking of Real Estate by REALTOR Magazine

The NAR has prepared a brochure that looks at how the tax might apply under eight income scenarios:
1) sale of principal residence (which we just looked at)
2) sale of a non-real estate asset
3) gain, interest, and dividend from securities
4) real estate investment income
5) rental income as sole source of earnings
6) sale of second home with no rental use
7) sale of inherited investment property,
8. purchase and sale of investment property.

You can download the brochure for free. It’s written in plain language and I think you’ll find it organized efficiently, so you can see at a glance the potential considerations for the different scenarios. Of course, it’s just guidance: each household’s situation will be different, so you would want to suggest to your customers and clients that they consult with a tax advisor to make sure the tax is applied correctly in their case.
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In case you missed the link for the brochure here it is again
3.8% Medicare Tax

Quick Overview of 3.8% Tax

3.8% TAX DETAILS:

1) Tax WILL NOT be imposed on all real estate transactions
2) Tax only applicable to those with individual adjusted gross income (AGI) over $200,000 or joint returns over $250,000
3) 3.8% will be taxed on some (but not all) INCOME from interest, dividends, rents and capital gain

A tax professional can help you sort through the details in which this new tax may pertain to your real estate purchases. There has been quiet a firestorm over weather or not this is a real estate transfer tax, and people are coming down on both sides of the issue. My guess is it will become much clearer as time goes on.

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Heather Rankin is a Realtor specializing in the Lake Powell areas of Page, AZ and Greenehaven, AZ as well as Big Water, UT including Page new home sales at Indigo Ridge and Toroweap Townhomes.

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