May 20, 2024


Mad about real estate

Real Estate Tax Hidden In "Obamacare"? Not True…

A rumor was recently brought to my attention – one that has apparently been circulating on the internet for some time – which claims a 3.8{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} real estate tax was hidden in the Affordable Care Act, as a means to help pay for the program. 

The rumor is not accurate – or at least, not completely accurate…

The H.R.4872 Health Care and Education Reconciliation Act of 2010 (passed in conjunction with the Patient Protection Affordable Care Act), places a 3.8{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} tax on investment income, starting in 2013.  It is not specifically on real estate income and very few people will ever have to pay it.

Page number 33 of H.R. 4872 outlines the details, but the description below from does an good job of summarizing it:

            The PPACA creates a new Code Section 1411, which will generally impose a 3.8{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} tax on the lesser of “net investment income” or the excess of modified adjusted gross income over a “threshold amount” (generally, $250,000 for taxpayers filing a joint return, $125,000 for married taxpayers filing a separate return, and $200,000 in all other cases). Net investment income generally means the excess of (1) interest, dividends, annuities, royalties, rents, income from passive activities, income from trading financial instruments and commodities, and gain from the disposition of certain non-business property, over (2) allowable deductions properly allocable to such income. In determining the amount of net investment income, special rules apply with respect to dispositions of equity interests in certain partnerships and S corporations, and to distributions from certain qualified plans. This additional tax applies to taxable years beginning after December 31, 2012.

Of course, the key words are “investment income”.  As it would relate to real estate, the tax is on the profit, not the overall price of the property.  If you had purchased a home for $350,000 and sold it for $400,000, you would be taxed on the $50,000 profit, not the $400,000 sale price.

That’s a difference of  $1,900 (what you would actually pay) versus $13,300 (what the rumor says you’d pay).

However, as I mentioned, very few people will actually pay that tax.

Only those earning $250k or more as a couple (or $125k+ for an individual), would pay the tax and only if the PROFIT on the INVESTMENT was greater than $500k as a couple (or $250k+ for an individual), due to protection that would still be in place via the capital gains threshold.

So again, only if you make over $250,000 a year and the sale of your “investment” earns you more than $500k, will you have to pay the 3.8{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} tax on the profit.

But don’t take my word for it – you can read more on, or go straight to the source by reading H.R. 4872 here (Section 1402, 1411).