Beginning January 1, 2013, a new 3.8 percent tax on some investment income will take effect. Since this new tax will affect some real estate transactions, it is important that all individuals who own investment real estate or who are thinking of purchasing or selling investment real estate clearly understand the tax and how it could impact your investment. It’s a complicated tax, so we aren't able to predict how it will affect every buyer or seller. You will need to consult your tax advisor to see how your specific situation is impacted.
To help people understand this new tax legislation, the NATIONAL ASSOCIATION OF REALTORS® (NAR) has developed this informational brochure. You can request a copy of the full bulletin here. This new tax was passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Barack Obama’s health care and Medicare overhaul plans.
According to the NAR Bulletin, this tax WILL NOT be imposed on all real estate transactions, a common misconception. Rather, when the legislation became effective in 2013, it imposed a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will fall only on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.