As of January 1, a new 3.8% tax was placed on high income investments to help generate $210 billion to fund new

national health care and Medicare plans. While the initial announcement was misinterpreted to include all real estate transactions, which it doesn't, the National Association of REALTORS® estimates that 2-3% of home sellers will be affected.

While the tax officially went into effect this year, it's actually the 2014 year that will be taxed, when investors file their 2013 income amounts.

Who Will Be Taxed:

  • Individuals with an adjusted gross income (AGI) over $200,000
  • Couples filing joint returns with an AGI over $250,000

Just like any tax equation, it's the amount over and above these minimum amounts that will be taxed. For example, if you file a single income return with an AGI of $275,000, you will be taxed 3.8% on the $75,000 that exceeded your basic allowance of $200,000.

What Will Be Taxed:

  • Rents (less expenses)
  • Capital gains (less capital losses)
  • Interest
  • Dividends

Capital gains are also subject to their own exemptions of up to $250,000 for individual filers and $500,000 for couple claims. Note that capital gains are profit from a sale, not the value of the sale, and it's easy to see how few people will actually be affected by the tax.

While the 3.8% tax has been negatively received by the media, it's mainly a case of myths and misunderstandings. The real estate investment tax will only be affecting high-income individuals who made substantial profits from investments.

If you're looking at real estate in the South Orange County area and are worried about how the 3.8% investment tax will affect you, give us a call at 877-442-5652! We have more than 50 years' experience with local real estate and specialize in investment properties.