Investors, high-income owners prepare for 2013 fallout

http://www.inman.com/buyers-sellers/columnists/berniceross/health-care-tax-coming-real-estate 

When does the new Medicare tax apply?

The new Medicare tax will hit a limited number of homeowners when it goes into effect in 2013. The tax applies only to single individuals who make more than $200,000 per year and married individuals filing jointly who earn more than $250,000. Clearly, only a small percentage of homeowners exceed these thresholds.

Even for these high-income individuals, however, the tax doesn't kick in on the homeowner's primary residence until the owner's profit exceeds $250,000 if single and $500,000 if married. In other words, people can continue to pull out $250,000 of tax-free profits from their primary residence if they are single and $500,000 if they are married. Any amount exceeding these limits will be subject to the capital gains provisions as well as the 3.8 percent health care tax.

The fly in the ointment

Only single-family, primary residences are exempt from this rule, provided the owners do not exceed the income guidelines and do not exceed the $250,000/$500,000 profit thresholds at time of sale. The new tax will apply on all other transactions, including luxury real estate sales, second homes and rental properties.

According to FactCheck.org, here are two examples of how individuals might be liable for the extra tax.

• A single executive making $210,000 a year who sells his $300,000 ski condo for a $50,000 profit. His tax on the sale of that vacation home would amount to $1,900, in addition to the capital gains tax he would have paid anyway.

• An "empty nester" couple with combined income of over $250,000 a year who sell their $1 million primary residence to move to smaller quarters. If they cleared $600,000 on the sale, they would be taxed on $100,000 of the profit (the amount over the $500,000 exclusion). Their health care tax on the sale would amount to $3,800 over and above the usual capital gains levy."