New investment 4.3% tax on top of capital gains on sale of rental house held 30 yrs?Language please?

Asked 9 months ago - Rochester, MI

new wife refused to move back into rental 2 years to avoid capital gains. Sold for 246k Jan 13. Gain calculated at 200k after depreciation. So expected to pay that all along. But another 6-8k (unsure) added for new investment tax and accountant said he will read the language and find out if i get excluded. This was my former home which turned into rental in 2000. He claims language still being written on new law. I almost want to amend 2012 and say I closed Dec 30th and forgot but I do not want to go to jail. What bothers this plumber is there really is no gain as the 1985 value as opposed to now is same in real terms. Help !

Attorney answers (1)

  1. Robert A. Piraino


    Contributor Level 7


    Lawyer agrees

    Answered . I believe you meant to say "net investment tax" instead of "new investment tax." The net investment tax went into effect on 1/1/2013. The NIT applies at a rate of 3.8% to certain net investment income, including gain from the sale of a second home that is not a primary residence. Your accountant appears to be upbeat, but I do not know of anything being contemplated that will provide you with an exemption from this new tax -- and I hope your accountant turns out to be correct and that he is able to obtain relief for you. Had you been able to move back into the rental property for 2 years, you would have been able to avoid the NIT tax to the same extent you could have used the up-to-$250K exclusion on gain from the sale of a residence. However, that option no longer exists. Do understand that you were able to deduct depreciation against your ordinary income and the amount of that depreciation in excess of straight-line depreciation will be taxed at the 25% rate, with the rest of the gain being eligible for the now 20% rate (as opposed to the 15% rate in effect for 2012).

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