Apparently, there was a little known tax added at the last minute to the Obama Health Care Reform Bill. Many questions have been tossed around and it became clear that not many people were aware of this new tax that would obviously affect the real estate industry. Well, thanks to our friends at the Georgia Association of REALTORS (GAR) and through them, the National Association of REALTORS (NAR), I was given this FAQ about this new tax.
Essentially, it is referred to as a Medicare tax and it will affect those sellers of real property who will be otherwise taxed on capital gains under current tax laws. By this, I mean… Under current laws, if you sell your primary residence and meet the ‘time ‘ criteria, you are exempt up to $250,000 or $500,000 (filing individually or jointly). Any amount realized OVER that amount is taxable under current tax schedules based on income. As such, this new tax will apparently be added to the current capital gains tax burden IF your income is over $200,000/$250,000 (filing individually or jointly).
For those selling second homes and investment properties, the tax, once again, will be applied to the amount of gain realized. More incentive to use a 1031 Tax-deferred exchange, yes?
Check out this link for the complete FAQ provided by NAR to learn more about this tax, how it may impact you, who it affects, and when it goes into effect.