Medicare Surtax & What It Means For Your Fort Lauderdale Home

This is from Kiplinger’s Letter about the Medicare surtax

The 3.8% Medicare surtax won’t apply to all home sale profits after 2012.  Many readers tell us they’ve received e-mails or read newspaper articles asserting that gains on all home sales will be hit by a 3.8% tax. That is incorrect.  Most gains on sales of primary residences will be exempt. Only the portion of profits that exceeds the $250,000 or $500,000 exclusion will be subject to the tax.  And only higher incomers will owe the surtax…singles with adjusted gross incomes over $200,000 or joint filers with AGIs above $250,000. The 3.8% surtax is levied on the smaller of the filer’s net investment income (including taxable capital gains) or the excess of the taxpayer’s adjusted gross income over the threshold amounts. But profits on sales of rental properties and second homes will be hit by the surtax, assuming that the seller’s adjusted gross income is large enough.  The passive loss rules are strict for short-term rentals of real estate…average rentals of seven days or less. A couple rented out several property units that each had rental periods averaging seven days or less. They used the companies that managed the properties to obtain tenants, collect rents, perform maintenance and the like. They visited occasionally to buy items for the units and make repairs.  The couple must materially participate in the units to deduct their losses, the Tax Court says. The easier-to-satisfy active participation test does not apply in the case of short-term rentals. So to deduct their rental losses, the owners must put in at least 100 or more hours a year on each unit, and their participation must be more than anyone else’s. Or they must work over 500 hours on each rental.