...courtesy of the National Association of Realtors, heres a couple of possible and simplified scenarios:
A couple filing jointly with an adjusted gross income of $325,000 realize a gain of $525,000 when they sell their principal residence.
If the gain is less than the $500,000 exclusion on the capital gain ($250,000 for single taxpayers), none of gain would be subject to the Medicare tax. But since the taxable gain is $25,000 above the $500,000 exclusion, it is added to couples AGI, bringing it to $350,000.
Thats $100,000 above the $250,000 AGI limit for couples filing jointly. But the $25,000 taxable gain on the sale of the property is the lesser amount in this case, so the extra Medicare tax that would be due Uncle Sam in this case would be $950, or 3.8% of $25,000.
A part-time landlord earns $85,000 from his day job plus $130,000 in gross rents from several condo apartments that he owns. But he also has $110,000 in expenses related to his income property, including depreciation and debt service, leaving him with $20,000 in net profits from his rental business.
Even though his adjusted gross income is $15,000 above the $200,000 ceiling for individual tax payers, before expenses, he will owe Uncle Sam nothing because investment income is counted as net, not gross, receipts.
You and your spouse paid $275,000 for a vacation home you have never rented and sell it for $335,000 in a year when your earned income from all other sources is $225,000. Thus, your AGI is $285,000, which is the sum of your $60,000 gain on the sale of the second home and your other income.
Because the $60,000 gain is more than the excess above the AGI threshold of $35,000, you would pay the Medicare tax on the lesser amount. Thats 3.8% of $35,000, or $1,330.
