Starting in 2013, a couple new taxes may be hitting you. Thanks to the 2010 Affordable Care Act, aka Obamacare, there are two taxes related to the Medicare surtax that could hit you this year.
If you’re a real estate investor, you may be subject to the 3.8% Medicare surtax that applies to passive income. Passive income in this case means net rental income and capital gains when you sell.
The tax only applies if your adjusted gross income is over $200,000 (if you’re single) or $250,000 (if you’re married filing jointly).
There are a couple of keys to reducing the impact of the tax:
(1) Keep your personal income under the threshold marks. If you have a business, that might mean using pension plans to reduce your taxable income.
If it otherwise works for your overall tax plan, set up a C Corporation so some or all of the income is reported on the corporate return.
(2) Verify that your income really is passive. Are you really a real estate dealer and thus the income is active income?
(3) Plan for big income years. In most cases, net real estate rental income won’t be much, but a sale of property with a big capital gain could trigger the tax.
Above all else, be prepared. This is a good time to get your strategy in place. Go to http://www.realestateloopholes.com to listen to a new webinar recording on this and other tax-saving strategies for your real estate investments.