The Tax Planning Countdown to 2013 Starts Now!

Investors considering whether or not to sell and pay their taxes, or sell and 1031 Exchange, must consider the year-over-year tax implications. Real estate investors will have a much greater tax burden in 2013 than in 2012.

Medicare Tax

Beginning January 1, 2013 a new Medicare tax of 3.8%  will be applied to investment income of those investors with a modified adjusted gross income of over $200,000 ($250,000 for couples filing jointly).  The tax applies to the lesser of the (1) total investment income for the year, and (2) the amount by which the individual’s total income exceeds the threshold.  For example a single individual taxpayer who has $150,000 of investment income and $125,000 of other income will pay the new Medicare tax on $75,000(the amount by which the individuals’ income exceeds the $200,000 threshold. Because the threshold amounts for the new Medicare tax are not indexed for inflation, more taxpayers will be subject to the new Medicare Tax over time.