What you need to know about the 3.8% Investment Tax


There are a lot of rumors floating around in cyberspace and beyond about this 3.8% tax  on to the sale/purchase of a home. Many people think that they will be subject to this tax and I am getting a lot of questions from friends, family, and clients. Please keep in mind I am not a tax professional or a CPA but this is a clarification of my understanding. In full disclosure, my husband Josh has an accounting degree and he is an enrolled agent with the IRS (meaning he is qualified to do your taxes).

Basically Obamacare imposes a 3.8% investment tax on unearned income above certain levels to help fund Medicare. 2013 will be the first year that this tax is applied.

So how does this tax affect you? If you add up every bit of your income and the total is less than $200,000 you will not have to pay this tax. The limit is $250,000 for a joint tax return.

The 3.8% tax will NOT be collected on real estate transactions. You will NOT pay this tax when you purchase a home.

This tax will NOT be collected at closing when you sell your home or investment property.

If you sell your primary residence – you will still receive the same capital gain benefits as before. If the capital gain on the sale of your home is over $250,000 for a single tax return or $500,000 for a joint tax return then any gains above these limits will go towards income when you file your federal taxes.

This tax also applies to other types of investments – not just real estate.

This tax took effect on January 1, 2013. That means you won’t pay this tax if it is due until you file your 2013 tax return.

If you do not have any income from capital gains, rents, interest or dividends you will NEVER pay this tax.

The tax is only imposed on amounts greater than $200,00/single return or $250,000/joint return. Meaning that if you and your spouse make $260,000 in income you would only pay the 3.8% tax on $10,000. That comes out to about $380.




Source: Houston Association of REALTORS®