There is a lot of misinformation out there about the additional 3.8% tax that begins in 2013. The answer to question about whether the 3.8% tax will apply to a home sale is that it might, it depends on each individual situation.
I will start by giving you a little background on the 3.8% percent tax. This tax applies to single individuals that have adjusted gross income over $200,000 and married individuals that have adjusted gross income over $250,000. The additional 3.8% tax is calculated on the taxpayer’s investment income. Investment income would be interest, dividends, capital gains, etc.
When an individual sells a house the gain on the sale of the home is only taxable if the gain is greater than $500,000 for married couples and $250,000 for single taxpayer’s and the taxpayer used the home as their principle residence for two out of five years.
So, if an individual that sells a house for a gain greater than $500,000 (or $250,000 for a single taxpayer) and the married couples adjusted gross income is greater than $250,000 ($200,000 for a single individual) then the portion of the gain that is over $500,000 (or $250,000 for a single taxpayer) would be subject to the 3.8% tax.
For example if a married couple that has an adjusted gross income of $300,000 sells their principal residence for a gain of $700,000, assuming they qualify for the $500,000 exclusion, they would pay the 3.8% tax on $200,000.
Christopher L. Mahowald, CPA
Meuwissen, Flygare, Kadrlik & Associates, P.A.