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I read “The 3.8% Tax Real Estate Scenarios & Examoles” and have a question about aplication. I saw nothing that addressed a couple or more likely a single retired person who is selling their principal residence and who has a retirement income of less than $200K. This is a likely scenario for thousands of people who bought homes years ago and are down sizing. Does this 3.8% tax apply to them?
Jack Gelke
John, let me reply based on my understanding but you’ll want to get a definitive answer from a qualified tax professional. If the individual’s adjusted gross income (AGI) is under $200,000, then they wouldn’t be subject to the 3.8 percent tax on investment income, even if they sold their house and realized a gain of $250,000 or more. To be subject to the tax, they have to have an AGI of $200,000 at a minimum. If they don’t meet that threshold, then the fact that they sold their house for $250,000 or more isn’t an issue. The same applies to a married couple, although the numbers change. If the couple together has an AGI of under $250,000, then they wouldn’t be subject to the tax even if they sold their home for a gain of $500,000 (that’s gain, not sales price). But you need to verify that with a qualified tax professional.