September 26, 2012

New Healthcare Real Estate Tax

Craig Trbovich Commercial Real Estate Update –

Is there a real estate tax in the new healthcare law?  I’ve seen it reported that there will be a 3.8% tax on all commercial real estate sales.  Fortunately, that is not true.  However, starting January 1, 2013, high income tax payers with unearned net investment income from real estate will be subject to a new 3.8 % tax, commonly referred to as the Medicare tax because it is designed to help fund  the Medicare program under the new law.

If you are a single taxpayer with Adjusted Gross Income (AGI) over $200,000, or a married taxpayer filing jointly with AGI over $250,000, the lesser of your unearned investment income or the amount of your AGI over $200,000/$250,000 will be subject to a 3.8% tax.  Unearned investment income includes most real estate investment income.

Therefore, both capital gains on the sale of commercial real estate and net income earned on the rental of commercial real estate could be subject to the tax.  Remember, the tax is applied to the AGI in excess of the $200,000/$250,000 amounts, or the unearned investment income, whichever is less.

There are possible loopholes for full time real estate professionals whose real estate income is “earned” and Subchapter S Corporations if you “materially participate.”   Consult your tax advisor before January 1, 2013 to plan accordingly.

Oh, and depending on what happens in November, this could change.  So get informed and get out the vote because your vote does count.


(Craig Trbovich, CPA is a commercial real estate advisor with Commercial Properties, Inc.)

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