The Truth About The New 3.8% Tax

My guess is you’ve probably heard about the 3.8% tax on investment income that will take effect on January 1, 2013. It was included as part of the health care legislation passed by the current administration and Congress in 2010 and it has been talked about quite a lot. I think it’s also safe to assume that you’ve read some inaccurate information about this tax. I’ve personally seen numerous emails, articles, etc. portraying this tax in an inaccurate light.

While we’re not here to defend any particular person, party or affiliation, we ARE here to make sure you are well, and accurately, informed. We’ve done a lot of our own research on the subject and thought it would be helpful to pass on what we’ve discovered. Much of what we’ve seen on the subject has stated there will be a 3.8% tax on all home sales. Meaning, if you sell your house for $200,000, as an example, you’d be required to pay $7,600 in additional tax ($200,000 x 3.8%). This clearly is NOT the case. This example fails to mention important factors such as the primary residence exclusion and adjusted gross income floors. Simply put, these exclusions and floors mean that the vast majority of people who sell their house will NOT be required to pay the 3.8% tax.

The reality is that the tax will, in most cases, affect wealthy people who have large investment gains (from interest, dividends, rents (less expenses) and net capital gains); though it could certainly catch folks who are not considered wealthy but find themselves with a large capital gain in any given year. For example, a person who has lived in a house they bought decades ago for $50,000, which is now worth $1,000,000, would likely have a nice 3.8% surprise hit from the IRS on the gain if they chose to sell their house.

The National Association of Realtors has released a publication that presents various scenarios and examples. If you’re interested in finding out more, it’s a great place to start. (Click here – The 3.8% Tax)

Like with most tax related issues, we always recommend talking to a CPA if you have any type of significant financial decision to make. That said, the likelihood of most people being affected by this tax is pretty small.

About Two Bald Mortgage Guys

Ken Blanchard, one of the country’s premier business leadership authors, says in his latest book, “To keep customers today, you can’t be content to merely satisfy them; you have to give them legendary service and create ‘raving fans’ – customers who are so excited about the way you treat them that they tell stories about you.” In everything we do, this is what we envision. We see people such as yourself being so enthused with the process and service we provide that you will become a raving fan for us, telling stories to people of what you just experienced.


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