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    0 Replies Latest reply on Oct 8, 2010 3:45 PM by calkain

    Unexpected Extra Tax

    calkain Wayfarer

      Many investors could be facing an unexpected extra tax. However,
      despite viral hoax emails to the contrary, it is not focused entirely on
      real estate transactions, in fact if you’re a real estate investor
      you’re probably in as a good a position as possible. Let’s examine:


      Health Care and Education Reconciliation Act of 2010 added IRC § 1411.
      Under this new regime, beginning in 2013 individuals with net
      investment income (interest, dividends, rental income etc...) and making
      over $200,000 and married couples making over $250,000 will face the
      specter of a 3.8% tax on the lesser of the amount their MAGI exceeds
      $200,000/$250,000 and their net investment income.


      This new
      measure is an attempt to capture and subject the “unearned” income of
      the “wealthy” to the same Medicare payroll tax that earned income is.


      you’re a real estate investor you’re probably about as well positioned
      as you can be as stocks and bonds don’t provide nearly the sort of
      opportunities to shelter income that real estate does, mainly through
      depreciation expense.


      Of note distributions from Pension Plans,
      401K, 403B, and IRA’s are exempt from the tax. Also, for real estate
      investors who materially participate in their investments the ability
      to elect to become a Real Estate Professional and turn their passive
      income into earned income may present some planning opportunities.

      by the way, this tax is in addition to the more well known new
      “Hospital Insurance Tax” of 0.9% imposed on earned income in excess of
      the aforementioned MAGI thresholds. All in, these new taxes could amount
      to an almost 5% increase in taxes to the “wealthy”. I guess someone
      has to pay for healthcare reform