Sheepshead Bites is bringing back Tuesday Tips, a series of articles from local experts to help you save money, make better decisions and plan for a better future. This week brings a tip from Joseph Reisman, of the Joseph S. Reisman & Associates accounting firm that’s been serving tax prep and business accounting expertise from its Coney Island Avenue office for more than 25 years. Check out the firm’s website, and don’t forget to tune in next week, when real estate and bankruptcy lawyer Daniel Gershburg returns with more advice!
No, although your house may need it, it will not be able to apply for Medicare. But it may have to pay into it.
The new Medicare tax, beginning in 2013, is a 3.8 percent tax on the taxable profit from the sale of a home. In fact, this new tax is on all taxable investment income including interest, dividends, annuities, royalties, and rents if your modified adjusted gross income is in excess of $200,000 if you are single, $250,000 if you are married filing jointly or a surviving spouse, or $125,000 if you are married filing separately. (Excluded from the tax are tax-exempt interest, and tax-exempt income, including veterans’ benefits.)
Add this 3.8 percent surcharge to the upcoming increase to 20 percent in the capital gains rates (for a total of a 23.8 percent rate), and the possible increase of the dividend rate to 39.6 percent, and your sale might no longer be your retirement nest egg.
Again, not included in the taxable profit is the homeowner’s exclusion of $250,000 ($500,000 for joint filers). However, if yours is a multi-family home, the homeowner’s exclusion only applies to your apartment – the rest of the house is your business income and subject to full taxes.
If the sale of your home is in the foreseeable future, call your tax preparer to see how you can minimize your tax burden.