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Medical Surtax 101

Many of our clients and investors have asked about the effect of the Medical Surtax that is to go into effect as a part of the 2011 Healthcare Reform.  There has been a lot of misinformation out there regarding this, so we wanted to clarify what this means to real estate investors and homeowners alike.  

The Medical Surtax is an additional tax on investment income, which would include net rental income and capital gains from the sale of a property.  

This tax is scheduled to begin in 2013 and only applies to net investment income if your modified Adjusted Gross Income (AGI) is over $250,000 if married; $125,000 if single.

This tax reduces the benefit of capital gains. Potentially capital gains could be taxed at 15% Federal + State Capital Gains Tax (5% in Alabama) + 3.8% Medical Surtax.  For Alabama residents, this would increase your capital gains tax from 20% in 2012 to 23.8% in 2013. 

There has also been a lot of misinformation that this applies to the sale of your home. It does apply to selling your house, but only if your gain on sale of home is taxable (greater than $500,000 if married, $250,000 if single). In today’s economy and with the housing market continuing to struggle, this should not apply to the vast majority of homeowners.

Naturally, things could change before 2013 depending on how the elections turn out.  However, this is a good guide as to what to expect with this impending tax law.

Many of our clients and investors have asked about the effect of the Medical Surtax that is to go into effect as a part of the 2011 Healthcare Reform. There has been a lot of misinformation out there regarding this, so we wanted to clarify what this means to real estate investors and homeowners alike.

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by Suzanne Echols
04.20.2012