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

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


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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so this net tax is in addition to capital gains tax both fed and state?

Robert A. Piraino

Robert A. Piraino


It is just a federal tax and is separate from, and in addition to, the federal tax on the capital gain. The NIT was enacted by the Affordable Care Act in 2010 to partially fund what is commonly called Obamacare.

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