3.8 Percent Medicare Tax in 2013 Beginning in 2013, the national health care reform legislation that became law in March, 2010, imposes a new 3.8 percent tax on certain investment income. The new tax will apply to single filers with incomes over $200,000 and married taxpayers with incomes over $250,000. In general, this new Medicare tax will apply to investment income that is subject to income tax, which includes capital gains, as well as gains on other property that are considered part of ordinary income (rental income). Again, this applies to investors who have income above the $200,000/$250,000 income thresholds.
The net effect of both tax increases will be a new 23.8 percent tax rate on realized gains, instead of the present 15%, for higher earners
However, 1031 exchanges are still in effect. These allow you to sell an investment property with gains and carry forward the gains into another replacement property.
If you are planning on selling a rental property in the near future, and will not be buying a replacement property, then these tax scenarios will apply to you. As you can see, significant tax savings can be achieved by selling your investment property this year.
Disclaimer: I am a Realtor, not a tax professional. Please consult a tax professional to see how these changes affect your situation before taking any action.
If I can be of further assistance to you on this subject, you can reach me at 207-713-2921 or contact me here.
Starting in 2011, there is a new tax requirements for landlords. All landlords who receive $600 or more in rent for the year must send a 1099 to all service providers that the landlord paid $600 or more during the year, such as plumbers, carpenters, yard services, and repair people. The new requirement applies to owners of both residential and commercial property. Prior to 2011, this requirement had only applied to those involved in full-time property management, but now the requirement covers all types of landlords. Landlords will need to gather federal tax ID numbers from service providers in order to file the 1099s. Failure to file the 1099s with the IRS can result in fines of $50 per 1099 not filed with the IRS. In 2012, these requirements will expand to cover providers of good to landlords.
NAR actively opposed this change in the law and is working with others to have this requirement repealed or otherwise modified. Congress took this action in order to assure that income paid to contractors can be verified through a section 1099.
