Clarifying That 3.8% Tax on Property Sales

From our Indiana Board of Realtors:

3.8% Medicare Tax:


The health care legislation enacted in 2013 included a new tax that
was designed to affect upper income taxpayers.
The 3.8% tax is imposed ONLY on
those with more than $200,000 of Adjusted Gross Income (AGI) ($250,000
on a joint return).

The tax applies to investment income, defined as interest,
dividends, capital gains and net rents. These items are all included in an
individual's AGI. A formula will determine what portion, if any, of these types
of investment income would be subject to the tax.

The tax is NOT a transfer tax on real estate sales and similar
transactions. Not long after the tax was enacted, erroneous and misleading
documents went viral on the Internet and created a great deal of
misunderstanding and made the tax into something far more draconian than the
actual provisions.

The new tax does NOT eliminate the benefits of the
$250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY
that portion of a gain above those thresholds is included in AGI and could be
subject to the tax.

See AGI on tax form:
http://images.turbotax.intuit.com/iqcms/support/lib/images/e-file/2010-AGI-1040-GEN12049.png