Obamacare - 3.8% Tax on Real Estate

This is a Tax on investment income, generally, but affects both residential and commercial properties.  Most residential properties will not be affected. However, Commercial Real Estate is impacted significantly by this Tax!  In most cases, upon the sale of investment property, Capital Gains will be taxed at 3.8% on the Total Gain, plus the amount of depreciation taken.  The National Association of Realtors has given an example to follow, which for this post, I am simplifying (see NAR's publication below).

If a building is purchased for $1,000,000 and the owner takes $270,000 in depreciation, has an adjusted base of $850,000, then sells the property for $1.5 million, there is a $650,000 capital gain, then the seller must add back the $270,000 depreciation, for a total of $920,000.  Multiply that by 3.8% and the owner will be responsible for $34,960.  Please note that this is subject to the Capital Gains being less than the Adjusted Gross Income of the owner, which will be the case most of the time.

For  more detailed info, see Example 7 in the National Association of Realtors Publication:  http://www.ksefocus.com/billdatabase/clientfiles/172/8/1437.pdf

http://health.burgess.house.gov/uploadedfiles/one_page_on_unearned_medicare_tax.pdf

 

Disclaimer:  We are not tax attorneys or accountants and are not offering tax advice.  We have used other sources, including the government website to gather this information.

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