Prepare for Higher Capital Gains Tax Part 1

Starting January 1, 2013, the government will impose a new 3.8% surtax on some investment income. The new investment tax will help generate an estimated $210 Billion that will help fund President Obama's health care and Medicare overhaul plans. 

The new tax levy applies to married couples with adjusted gross income of more than $250,000 and single filers with adjusted gross income above $200,000.

Adjusted Gross Income or AGI includes interest, dividends, capital gains, wages and retirement income plus results from partnerships and small businesses.

Investment Income applies to dividends, rents (less expenses), royalties, interest, except municipal-bond interest, short-and long term capital gains (less capital losses); the taxable portion of annuity payments; income from the sale of a principal above the $250,000/$500,000

exclusion; a net gain from the sale of a second home; and passive income from a real estate and investments - if a taxpayer does not participate, such as a partnership.  (Source: www.smartmoney.com)

Watch out for Part 2 for sample computations of the new 3.8% surtax on some investment income on different scenarios.