Today real estate investors who own and operate condos, apartment buildings, retail shops and single family homes in Southern Nevada, should be acquainted with the 3.8% investment tax that became effective. Known as the “Medicare Tax”, it was put in place as part of the Affordable Health Care Act of 2010.
For investors not yet familiar with this, highlights are below.
This tax tends to affect a higher income bracket of professionals whose primary job is not in the real estate industry. These are individuals or families who may also invest in Las Vegas real estate. The tax will apply to individuals with an adjusted gross income that exceeds 200 thousand per year and couples with an adjusted gross of 250 thousand per year.
In general the adjusted gross income will be calculated to include investment income. The tax then will be applied to the lesser of the investment income or the excess of adjusted gross over the limits (see above.)
The tax is not exclusive to real estate. It will also be applied to capital gains, dividends and interest made on bonds, among other things. For investors who own rental properties here in Vegas the new taxes will apply to net rental income (after expenses and depreciation.) Properties that are rented less than 14 days per year will be excluded. In addition, real estate firms that run full time businesses managing properties will not be effected by this new tax.
It should be noted that this new tax will not be applied to all home sales, such as a personal residence. Nor will it affect the current exemptions already in place for the sale of a primary residence in the Las Vegas and Henderson areas. Currently that is 250 thousand for an individual or 500 thousand for a married couple. Also any concerns about a mortgage interest deduction should also be eliminated as that will remain in place.