Many people who receive rental income from properties such as apartment buildings, single-family homes and retail shops will be hit with an investment surtax of 3.8% that began on January 1, 2013. This Medicare tax, which was passed as part of the Affordable Healthcare Act in 2010, will not affect real estate companies or those who work fill-time managing their real-estate portfolio.
This new tax will affect high-earning professionals, such as doctors, lawyers and others who have full-time jobs and invest in real estate on the side. This tax covers all other types of investment income as well, such as dividends, capital gains and interest from banks or bonds.
An attorney stated, “We know for certain the Medicare tax is here to stay. I think there might have been some question if the tax would be a bargaining chip in the fiscal cliff negotiations. It was not.” The passage of this legislation raised the permanent top rate on Americans with incomes of $400,000 for singles filing, or $450,000 for married couples.
The Medicare tax generally applies to income received from rental properties for single individuals whose net income is greater than $200,000 and for married couples whose income exceeds $250,000. The code applies the tax to either a person’s net investment income or the amount the adjusted gross income exceeds the thresholds.
If you are looking to purchase or sell real estate, feel free to contact Pulgini & Norton, LLP at (781) 843-2200 or (888) 344-2046, or email us with any questions you may have. Our attorneys offer nearly 40 years of combined legal experience and provide thorough, timely, and results-driven service in many aspects of both residential and commercial real estate.
2013 Brought New Tax for Some Real-Estate Investors, The Wall Street Journal, January 2, 2012