The real estate market and the new Medicare tax imposed by the Obama Administration seem mutually exclusive, but according to the National Association of Realtors (NAR), investors in real estate might be unexpectedly affected. The recently issued 3.8% tax on “unearned income” concerns only high income taxpayers; the IRS considers a high income taxpayer to be anyone with an AGI (Adjusted Gross Income) of 200K or over, and married taxpayers filing jointly with an AGI of 250K or over.
“Unearned income” references any income earned by investing capital—which includes capital gains, gross rents, dividends, and interest income. Despite this, net expenses like depreciation incurred by operating these investments can by subtracted from the taxable amount. Losses on the investment property are not subject to the tax.
The tax is scheduled to be implemented on January 1, 2013, but it is yet unclear on how the tax will affect the real estate market in the long term. Check out NAR’s Frequently Asked Questions about the Medicare tax for more information.