The New 3.8% Medicare Surtax, Bringing It Home

Written by Fletcher H. Rush | frush@farr.com
Attorney Fletcher Rush

Fletcher H. Rush, Attorney
Fletcher practices in the areas of wills, estate planning, trust administration and tax planning.  

You have probably heard people talking about the new 3.8% surtax imposed by the Patient Protection and Affordable Care Act (“Obamacare”). The surtax applies to taxpayers who have “modified adjusted gross income” in excess of $200,000 ($250,000 if married filing jointly) and “net investment income.” However, there may be a few types of income that trigger this surtax that you may not have heard about.

One particular source is the sale of a residence, even the sale of your principal residence. Of course, taxpayers are still entitled to exclude gain (up to $250,000 or $500,000 if married filing jointly) from the sale of principal residence, but any gain in excess of this amount may be subject to the new surtax. For homes not entitled to the principal residence exclusion, any amount of gain may be subject to the new surtax. There are a few options available to taxpayers in this circumstance, including an installment sale of the residence. To determine how the new 3.8% surtax affects you, contact your tax advisor.