Obamacare – a health plan – is adding additional layers of complicated national taxes as of January1, 2013.

It is the very beginning of the european VAT in America.

These income thresholds will go down, and the AMT will go up.

Basics:
Tax Rate:  3.8%
Applies to:  Individuals with adjusted gross income (AGI) above $200,000.  Couples filing a joint return with more than $250,000 AGI.
Types of Income:  Interest, dividends, rents (less expenses), capital gains (less capital losses)

Formula:
The new tax applies to the LESSER of
Investment income amount
Excess of AGI over the $200,000 or $250,000 amount

Examples:
Capital Gain:  Sale of a Principal Residence
John and Mary sold their principal residence and realized a gain of $525,000. They have $325,000 Adjusted Gross Income (before adding taxable gain).
The tax applies as follows:

AGI before taxable gain	$325,000
Gain on sale of Residence	$525,000
Taxable Gain (added to AGI)	$25,000	($525,000 – $500,000)
New AGI	$350,000	($325,000 + $25,000 taxable gain)
Excess of AGI over $250,000	$100,000	($350,000 – $250,000)
Lesser amount   (Taxable)	$25,000	(Taxable gain)
Tax due	$950	($25,000 x 0.038)

Capital Gain:  Sale of a non-real estate asset
Barry and Michelle inherited capital assets that they have decided to liquidate.  The sale of the assets generates a capital gain of $120,000.  Their AGI before the gain is $140,000.  They will pay the tax as follows:

AGI before capital gain	$140,000
Gain on sale of assets	$120,000
New AGI	$260,000
Excess of AGI over $250,000	$10,000
Lesser amount   (Taxable)	$10,000	(Excess over $250,000)
Tax due	$380

Capital Gains, Interest and Dividends:  Securities
Harry and Sally have substantial income from their securities investments.  Their AGI before including that income is $190,000.  Their investment income is as follows:

Interest Income (Bonds, CDs)	$60,000
Dividend Income	$75,000
Capital Gains	$10,000
Total Investment Income	$145,000
New AGI	$335,000	($190,000 + $145,000)
Excess of AGI over $250,000	$ 85,000	($335,000 – $250,000)
Lesser amount   (Taxable)	$ 85,000	(AGI excess)
Tax Due	$ 3,230	($85,000 x .038)

Rental Income: Income Sources Including Real Estate Investment Income 
Hank has a “day job” from which he earns $85,000 a year.  He owns several small apartment buildings and earns gross rents of $130,000.  He also has expenses related to that income.  Even though his combined gross rents and day job earnings are more than $200,000, he will not be subject to the 3.8% tax.

AGI before rents	$85,000
Gross Rents	$130,000
Expenses (including depreciation)	$110,000
Net Rents	$20,000
New AGI	$105,000	($85,000 + net rents)
Excess of AGI over $200,000	$0
Taxable amount	$0
Tax due	$0

Rental Income:  Rental Income as sole source of Earnings – Real Estate Trade or Business
Henrietta’s sole livelihood is derived from owning and operating commercial buildings.  Her income stream is as follows:

Gross rents	$750,000
Expenses (including depreciation)	$500,000
Net rents	$250,000
AGI (rental income)	$250,000
Excess of AGI over $200,000	$50,000
Taxable amount	$0

Because Henrietta’s rental income is from a trade or business and therefore not treated as investment income, she is NOT subject to the 3.8% investment income tax. Henrietta WILL be subject to new 0.9 tax on earned income, however, because some portion of the net rents represents her compensation for operating the commercial buildings.

For this example, assume that the net rents are her compensation.  The tax on this earned income would be as follows:

AGI	$250,000
Excess of AGI over $200,000	$50,000
Tax due	$450	($50,000 x .009)