What is all the hype about the new 3.8% National Health Care Real Estate Tax?
As part of the funding for the National Health Care Act, certain real estate income is being taxed. It has been estimated only 3.5% of Californians will bear any extra costs related to their real-estate sales.
This tax WILL NOT be imposed on all real estate transactions which is a common misconception. It may impose a 3.8% tax on some income for interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will be imposed on individuals with an adjusted income (AGI) above $200,000 and couples filling a joint return with more than $250,000 AGI.
Here is the basic formula. The new tax applies to the LESSER of:
- Investment income amount
Excess of AGI over the $200,000 or $250,000 amount.
This is a complicated tax so it is a good idea to talk with a CPA if you believe you may owe tax or if you plan to sell a home or invest in any Real Estate.
The National Associations of Realtors developed a Brochure to better explain different scenarios to help you determine if you have any tax exposure.