The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010, also known as “Obamacare”, enacted a 3.8% Medicare Tax on unearned income of certain individuals. Some people have also dubbed this tax the “real estate sales tax”. Many people think that starting Jan 1, 2013, there will be a 3.8% sales tax on all real estate transactions. This is NOT true!
The 3.8% tax only applies to those who fit into both of the following categories:
- Modified adjusted gross income (MAGI) in excess of $200,000 for single taxpayers , $250,000 if filing a joint return & $125,000 if filing a married separate return
- The tax is on gain that exceeds your Sec. 121 exclusion which is $250,000 for single taxpayers and $500,000 for joint taxpayers
In other words, only taxpayers with MAGI over $200,000 (or $250,000 if married filing jointly) who sell their principal residence and realize more than $250,000 in gain ($500,000 if married filing jointly) will be subject to the 3.8% tax and only on the amount of gain they realize over the Sec. 121 threshold.
If you feel like you fall into both of these categories, speak with a tax professional before selling your principal residence for tax planning advice.