Starting in 2013, the health care bill does impose a 3.8% Medicare tax on high-income taxpayers who exceed a total household net-investment income — a total which could conceivably include some of the proceeds from a home sale. However, while this Medicare tax will be applied to households with an adjusted gross income of $200,000 or more for individuals, or $250,000 or more for married couples, it typically won’t include capital gains resulting from the sale of a home, providing that home is a primary residence and not a vacation or rental home.

Why? Because the capital gains tax exclusion rule for sales of a primary home — $250,000 for individuals and $500,000 for couples — will remain. In other words, if the profit realized from the sale of the home falls below those capital gains exclusion totals, then it can’t be tacked on to that household’s net-investment income tally. Hence, that 3.8% Medicare tax would not apply.

If the gains from the sale of the house do exceed the $250,000 or $500,000 thresholds, they will be added to the household’s net-income total, which is subject to that 3.8% Medicare tax. All told, however, that tax will fall on a relative few — typically, households with large incomes from other sources. Any revenue collected through the Medicare tax, by the way, goes to the Medicare hospital insurance program.

If you do happen to be in that high-income bracket and own one of those scant few homes in which your sale profits are likely to greatly exceed the capital gains limits, you won’t have to worry about that Medicare tax anyway unless you wait until next year or later to sell. Even if you should decide to sell in 2013 or after, the issue may be moot by then if the Supreme Court shoots down parts or all of the legislation this year.

Most likely though, that Medicare tax will not affect you in any way. Good luck on your sale!

Source: FoxBusiness

Read more about the 3.8% Medicare Investment Surtax – HERE