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Wednesday, July 18, 2012

Reminder: 3.8% Tax is Not a Tax on Real Estate
Download the Myth vs Fact Brochure

Tax time is nearing and once more rumors are circulating on the Internet and by e-mail that the health care reform law enacted two years ago includes a 3.8 percent transfer tax on real estate starting in 2013. That rumor is not true and NAR has material available to you to explain how that 3.8 percent tax works. It's a tax on a very narrow band of investment income for high-wealth households (those who earn $250,000 in a joint return or $200,000 as an individual) that could come into play on the sale of a house if the sales gain is more than $500,000 for a married couple or $250,000 for an individual. Even in the unlikely event the sales gain is more than that amount, the tax would only apply based on other considerations having to with the household's income and tax situation. The bottom line is, the tax, which was imposed to help shore up Medicare, will only hit some portion of investment income.
Source: National Association of REALTORS®

Simple Example: Married couple earning $250,000 per year - bought a house 25 years ago for $500,000. Sell the house for $1,100,000. They would have to pay 3.8% on $100,000. (the amount over a $500,000 gain)

Go to REALTOR.org to download the brochure - get the facts.








For More Information On Chautauqua Lake Real Estate and Living Visit: www.chautauqualakehomes.com Our Listings:  www.chautauqualakehomes.postlets.com

Monday, July 09, 2012


DAILY REAL ESTATE NEWS

Produced by Inman News

July 9, 2012

Sponsored by Lowe's

New Medicare tax creates incentive for home sales

Real Estate Tax Talk By Stephen Fishman
Inman News®
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The Patient Protection And Affordable Care Act ("Obamacare") will affect everyone in the United States one way or another. But some people will be affected more than others. Among these are high-income taxpayers. Starting in 2013, they will be subject to a brand new Medicare tax on their "unearned income."
Who is subject to the tax?
Starting in 2013, a 3.8 percent Medicare contributions tax will be imposed on the lesser of (1) the taxpayer's net investment income, or (2) any excess of modified adjusted gross income (MAGI) over $200,000 ($250,000 for married taxpayers filing jointly). Thus, all single taxpayers with MAGI over $200,000 and married taxpayers with MAGI over $250,000 will be subject to this tax. This is a small proportion of the population, but a significant one for the real estate industry.
What income is taxed?
The tax applies only to investment income. This includes:
  • gross income from interest, dividends, annuities, royalties, and rents other than those derived from an active business
  • the net gain earned from the sale or other disposition of investment and other non-business property, and
  • any other gain from a passive trade or business.
This includes just about any income not derived from an active business or from employee compensation.
Example: Sue and Sam, a married couple filing jointly, have a MAGI of $300,000 in 2013 which includes $100,000 of net investment income. Their MAGI is $50,000 over the $250,000 threshold, thus they must pay the 3.8 percent tax on $50,000 of their investment income. This results in a $1,900 tax.
Can the tax apply to the profit earned on home sales?
Yes. But, in the case of the sale of a principal residence that qualifies for the special tax exclusion on such income, it would apply only if the net gain from the sale exceeds the $500,000 exclusion for joint filers or $250,000 for singles, and then only to the extent that taxpayer's income exceeds the $200,000/$250,000 MAGI threshold.

Example: Lucy purchased a home in San Francisco in 1995 for $250,000. She sells it in 2013 for $750,000. She also earned $100,000 in employee wages in 2013. She earned a $500,000 profit on the sale of her home ($750,000 - $250,000 = $500,000). She qualifies for the $250,000 home sale exclusion, so she is left with $250,000 of net investment income from the sale. This, added to her wages, gives her a MAGI of $350,000 -- $100,000 over the Medicare tax threshold. Therefore, she must pay $3,800 in extra Medicare taxes (3.8 percent x $100,000 = $3,800).
This new tax gives homeowners who have very substantial equity in their homes a strong incentive to sell them in 2012 before the new tax takes effect.







For More Information On Chautauqua Lake Real Estate and Living Visit: www.chautauqualakehomes.com Our Listings:  www.chautauqualakehomes.postlets.com

Sunday, July 08, 2012