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What Is the 2013 Medicare Real Estate Tax?

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The new real estate tax to help fund Medicare is of particular interest to people all over the United States who are trying to digest and make sense of the new 2,000-page health care legislation. The truth is the new law has a provision that calls for a new tax. The tax, however, doesn’t apply to every real estate transaction.

Specifically, the Health Care and Education Reconciliation Act of 2012, which was signed into law on March 30, 2012 by President Obama, under Section 1402, “Unearned Income Medicare Contribution,” imposes a 3.8 percent tax on profits from the sale of real estate whether it be residential or investment.

One might have a panic attack after reading this, but it’s important to study more of this section of the law to understand its implications.

The additional tax is aimed at those individuals who have an adjusted gross income of more than $200,000 or for married couples filing jointly whose income exceeds $250,000. So if this doesn’t apply to you, you can stop reading now.

Here are the facts:

  • The levy takes effect January 1, 2013.

  • Your adjusted gross income must exceed $200,000.

  • It’s called the Medicare tax because the funds generated will be allocated to the Medicare Trust Fund, part of the Social Security system.

  • It’s not a sales tax and doesn’t impose any recordation or transfer tax.

  • It’s calculated on which is less: the gain you have made on the sale of your home or the amount your income exceeds the appropriate threshold.

  • The tax applies also on income from interest, dividends, annuities, royalties, and rents that are not derived in the ordinary course of trade or business.

  • The new law excludes active S corporation or partnership income.

While the new health care legislation is complex and carries with it new methods to fund the system, it’s important to review each piece with care and to determine whether you are directly impacted by it. It’s also very important to ensure that your accountant and financial advisors are aware of the new legislation and how it impacts you, so that collectively, you can plan accordingly.

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