New taxes could have an impact

A new 3.8% tax takes effect this year on some investment income on certain real estate transactions.

While this is not new, it is worth re-examining. This is a complicated tax, so accountants and tax advisers should be consulted as to how it affects every buyer and seller. If you recall, this tax was enacted March 23, 2010, and is intended to fund the health care and Medicare overhaul plans.

This tax will not be applied to all real estate transactions but it may be imposed on some income from interest, dividends, rents less expenses, and capital gains less capital losses. This tax will apply only to individuals with an adjusted gross income (AGI) more than $200,000 and to couples filing a joint return having more than $250,000 AGI.

This new tax also applies to the lesser of investment income amount as compared to the excess of AGI over the above $200,000 (for individuals) or $250,000 (for couples).

Another new tax also for funding Medicare is imposed on “earned” income of higher tax bracket individuals. This earned income tax has a lower rate of 0.9%. This alternative tax is based on adjusted gross income thresholds of $200,000 for an individual and $250,000 on a joint return. Similar to the 3.8% tax, this 0.9% is applied only on the excess of earned income above the threshold amounts.

Another perspective to consider is that the 3.8% tax is being imposed on a portion of the money you earn on your money or capital which is sometimes referred to as unearned income. The 0.9% tax is applied to the portion of money made on labor — salary, wages, commission, and similar income related to earning a living.

Renting isn’t without its drawbacks. Responsible renters expect the return of their security deposit when they move out. Unfortunately, 26% of renters have been denied their security deposits, according to a survey.

The primary reason for landlords to withhold security deposits was a tenant moving out early or breaching their lease. These renters (ages 18 to 24 years old) or 44% reported breaking the lease agreement as the reason for not getting their security deposit back. The other reason reported, by 12%, was due to pet damages. Unfortunately, a significant 36% of those polled reported that their landlords did not provide any explanation for refusing to give back the security deposit.

Why is renting still the only option for some people? Mortgage credit restrictions are making it difficult for many prospective buyers to get a loan. Inventory is also limited in areas due to the years of little to no new construction, and the fact that many buyers are waiting to purchase.

According to Trulia, the real estate market is 52% as strong as it was prior to the 2008 downturn. This monthly indicator is based upon the U.S. Census construction data, National Realtors Association existing sales and delinquency and foreclosure rates according to Lender Processing Services.

This is a relatively high score (52%) since the real estate boom.


Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected] or she may be reached directly at 203-249-2244.

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