There are a lot of rumors out there about a 3.8% real estate sales tax/transfer tax embedded in the health care bill. There is neither a real estate sales tax nor transfer tax under any federal law. The 2010 health care legislation did create a new 3.8% tax, but it applies only to a limited group of taxpayers.

The new tax will apply to the “unearned” income of “high income” taxpayers. The new Medicare tax on unearned income will take effect January 1, 2013. Proceeds from the tax are proposed to be allocated to the Medicare fund. Those whose tax filing status is “single” will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax.

Unearned income is the income that an individual derives from investing his/her capital (i.e. Capital gains, rents, dividends, interest income). It can also come from net income in some investments in active businesses if the investor is not an active participant in the business.

Any gain from the sale of a principal residence that is less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded from the income tax. The new 3.8% tax will not apply to this excluded amount of the gain.

It is always prudent to consult tax and investment advisors with particular questions.

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