If you’re considering selling your Santa Cruz home, you may have heard rumors that there is a new tax going into effect in January, 2013. Here’s the rundown on what the tax really is – and isn’t.
The new tax is called the ‘‘Unearned Income Medicare Contribution.” It is a 3.8 percent tax on the net investment income of high-income taxpayers. The tax will apply to those with an adjusted gross income of more than $200,000 ($250,000 for joint filers), with no indexing for inflation.
The Good News
Odds are that you will never pay this tax.
Why You Most Likely Won’t Pay the New Tax
The tax will apply to capital gains, not sale proceeds. Because of the current exclusion of gains on home sales — up to $500,000 (joint) or $250,000 (single) on a primary residence — the vast majority of home sellers will not be required to pay this tax.
Here’s an example: A couple with an adjusted gross income of more than $250,000 (which qualifies them for the tax -- more than 90% of households make less than that) decide to sell their house. They purchased their Santa Cruz home long, long ago for $50,000. They sell the house, miraculously, for $549,000. Because that profit of $499,000 is under the $500,000 profit exclusion amount allowed for couples, they owe no tax.
The Bottom Line
There are plenty of other taxes that are worth getting upset about; this isn’t one of them.
If you're looking for more information on selling a Santa Cruz home, I can help. Give me a call today at 831.662.6522 or email me at Lauren@LaurenSpencer.com.
For additional real estate information, please visit my homepage at www.MySantaCruzRealEstate.com.