Last updated on: 10/24/2012 9:19:22 AM PST
Does Obamacare Contain a New Tax on “Unearned Income”, Including Some Real Estate Sales, for Individuals with an Adjusted Gross Income of $200,000 or More? – YES
General Reference (not clearly pro or con)
The Health Care and Education Reconciliation Act of 2010 (HR 4872), Section 1402, "Unearned Income Medicare Contribution," page 32, signed into law on Mar. 30, 2010, available at the Library of Congress website, states:
"(a) INVESTMENT INCOME.—
(1) IN GENERAL.—Subtitle A of the Internal Revenue Code of 1986 is amended by inserting after chapter 2 the following new chapter:
'SEC. 1411. IMPOSITION OF TAX.
'(a) IN GENERAL.—Except as provided in subsection (e)—
(1) APPLICATION TO INDIVIDUALS.—In the case of an individual, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax equal to 3.8 percent of the lesser of—'(A) net investment income for such taxable year, or
(B) the excess (if any) of—
(i) the modified adjusted gross income for such taxable year, over
(ii) the threshold amount...
(1) IN GENERAL.—The term 'net investment income' means the excess (if any) of—
(A) the sum of—
(i) gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2),
(ii) other gross income derived from a trade or business described in paragraph (2), and
(iii) net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2), over
(B) the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.'"
Mar. 30, 2010 - Health Care and Education Reconciliation Act of 2010 (HR 4872) (283KB)
The National Association of Realtors stated in their Feb. 16, 2012 article "New Medicare Tax on 'Unearned' Net Investment Income," available at its website:
"The 2010 health care legislation did create a new 3.8% tax, but it applies only to a limited group of taxpayers...
The new 3.8% tax will apply to the 'unearned' income of 'High Income' taxpayers. The new Medicare tax on unearned income will take effect January 1, 2013. Proceeds from the tax will be allocated to shoring up the Medicare fund...
Those whose tax filing status is 'single' will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax. (The AGI threshold for married filing separate returns is $125,000.)"
Bill Bischoff, CPA, MBA, Contributing Editor of SmartMoney, stated in his June 28, 2012 article "What Obamacare Means for Your Taxes," available at the SmartMoney website:
"[S]tarting in 2013, all or part of the net investment income, including long-term capital gains and dividends, collected by higher-income folks can get socked with an additional 3.8% 'Medicare contribution tax...
The additional 3.8% Medicare tax will not apply unless your adjusted gross income (AGI) exceeds: (1) $200,000 if you're unmarried, (2) $250,000 if you're a married joint-filer, or (3) $125,000 if you use married filing separate status.
The additional 3.8% Medicare tax will apply to the lesser of your net investment income or the amount of AGI in excess of the applicable threshold. Net investment income includes interest, dividends, royalties, annuities, rents, income from passive business activities, income from trading in financial instruments or commodities, and gains from assets held for investment like stock and other securities. (Gains from assets held for business purposes are not subject to the extra tax.)"
Kenneth R. Harney, Managing Director of the National Real Estate Development Center, stated in his July 15, 2012 article "Healthcare Law's Surtax Could Affect a Few Home Sellers in 2013," available at latimes.com:
"Yes, there is a new 3.8% surtax that takes effect Jan. 1 on certain investment income of upper-income individuals — including some of their real estate transactions. But it's not a transfer tax and not likely to affect the vast majority of homeowners who sell their primary residences next year.
In fact, unless you have an adjusted gross income of more than $200,000 as a single-filing taxpayer, or $250,000 for couples filing jointly ($125,000 if you're married filing singly), you probably won't be touched by the surtax at all...
Even if you do have income greater than these thresholds, you might not be hit with the 3.8% tax unless you have certain types of investment income targeted by the law, specifically dividends, interest, net capital gains and net rental income. If your income is solely 'earned' — salary and other compensation derived from active participation in a business — you have nothing to worry about as far as the new surtax.
Where things can get a little complicated, however, is when you sell your home for a substantial profit, and your adjusted gross income for the year exceeds the $200,000 or $250,000 thresholds. The good news: The surtax does not interfere with the current tax-free exclusion on the first $500,000 (joint filers) or $250,000 (single filers) of gain you make on the sale of your principal home. Those exclusions have not changed. But any profits above those limits are subject to federal capital gains taxation and could also expose you to the new 3.8% surtax."
Roy Oppenheim, JD, Co-founder and Senior Partner of Oppenheim Law, stated in his July 3, 2012 article "The Truth About Obamacare's Real Estate Sales Tax (It Doesn't Exist)," available at the South Florida Law Blog:
"When 'Obamacare' was first passed the blogosphere was up-in-arms that the AHA included an additional 3.8% tax on any real estate sale, and claimed, 'that's $3,800 on a $100,000 home.'...
But just like Bloody Mary or death panels, it's just another urban legend that just won't go away.
So kids once more with feeling, 'There is no real estate sales tax in Obamacare.'
Now there is an additional capital gains tax included in the Affordable Care Act, and yes it will affect a narrow field of real estate transactions...
There is a new tax on investment income which will cover the income from interest, dividends, rents, as well as capital gains. It's not a transfer tax on real estate sales.
While the sale of a home can be subject to this tax, it is only if a number of criteria are met.
If you are a married couple making less than $250,000 or an individual making less than $200,000, then you cannot be taxed."
[Editor's Note: Based upon a neutral reading of the Patient Protection and Affordable Care Act and bi-partisan third party analysis, this question seems to have a clear and obvious Pro (yes) answer, and ProCon.org has therefore presented the responses in a single column with no opposing perspective.]