Sale of Property and 3.8% Medicare Surtax

The new 3.8% Medicare surtax generally does not apply to the sale of a personal residence as long as the profit from the sale is less the $250,000 (single) or $500,000 (married filing joint) exclusion. All taxpayers are allowed profits on their main home up to the exclusion amounts. Profits above those amounts are subject to capital gains tax and now the new 3.8% Medicare surtax.

However, if the property is not your primary residence, for example if it is a rental home, second home, inherited home, or a vacation home, then the sale of the property will be subject to the new Medicare tax. Generally only those whose adjusted gross income is greater than $200,000, or $250,000 for married filing joint will need to worry about this extra tax bill. It will also be applied to net investment income and capital gains.

So if you’ve sold a piece of property that wasn’t your home, and/or had a lot of profits (capital gains) from sales of stock etc., you just might want to prepare yourself for a higher tax bill. See your preparer or read the forms CAREFULLY!

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