The 3.8% Tax to Real Estate Transaction Effective January 1, 2013

Rumors have been flying around since 2010 when Congress passed the Health Care bill that a new tax would be imposed on real estate transactions. The tax is complicated and I am NOT A CPA, so for further details, PLEASE ask your accountant. What I hope to do is highlight the points you should know as you head into the next 12-15 months before this tax becomes implemented.

When: Beginning on sales as of January 1, 2013

What: An additional 3.8% tax on the sale of real property (real estate), subject to the following criteria –

Who: Individuals with an Adjusted Gross Income above $200,000
Couples with an Adjusted Gross Income above $250,000

Taxes on Interest, Dividends, Rents (less expenses), Capital Gains (less capital losses)


The new tax applies to the LESSER of

  • Investment income amount
  • Excess of AGI over $200k/$250k

Here’s what most of you want to know – will you have to pay that 3.8% on the sale of your principal residence? Here’s a great summary by Robert Freedmon, Editor of Realtor Magazine:

Here’s how the tax works. For individuals earning $200,000 a year or more and married couples earning $250,000 a year or more, certain investment income above these income levels might be subject to the 3.8 percent tax on a portion of that income. I say “might” because whether the tax applies or not depends on many factors having to do with the kind and amount of the investment income the household receives.

Investment income includes capital gains, dividends, interest payments, and, for those who own rental property, net rental income.

Importantly, the $250,000 (for individuals) and $500,000 (for married couples) capital gain exclusion on the sale of a principal residence remains in place. So, if you’re a married household that sold a house for a $500,000 gain (that’s gain, not sale proceeds), that amount remains excluded from your income calculation.

The National Association of Realtors(R) has also put together a great brochure that attempts to explain this in plain english with examples. You can read the brochure here.

Just remember: don’t believe everything you read on the internet. Ask your accountant to help decode this for you and your INDIVIDUAL circumstance.

If you do talk to your CPA and they advise you to sell – call me! We can sketch out a game plan for the best time for you to sell before we ring in 2013.