Prepare for Higher Capital Gains Tax Part 2/2

PART 2: EXAMPLES (Source: Wall Street Journal)

EXAMPLE 1 

A married couple filing jointly has $400,000 of adjusted gross income — $240,000 of wages plus $160,000 of investment income composed of interest, dividends and net gains from the sale of raw land. Because they have $150,000 of investment income above the $250,000 threshold, they would owe an extra 3.8% of that amount, or $5,700, in tax. 

EXAMPLE 2 

A retired couple filing jointly has no wages but does have taxable IRA payouts of $100,000, plus pension and Social Security payments totaling $60,000. They also have dividends and taxable interest of $40,000, plus $40,000 from the sale of two investments. They owe nothing, because their income is below the $250,000 threshold.

EXAMPLE 3

A single taxpayer earns $60,000 of wages but nets a windfall of $180,000 from the sale of a long-held investment. Because she has $40,000 of investment income above $200,000, she owes $1,520 of extra tax. 

EXAMPLE 4

A single taxpayer has income of $220,000, but all of it comes from Social Security benefits and pension and regular IRA payouts. None of the income is subject to the 3.8% tax. 

EXAMPLE 5

A couple bought a residence long ago for $100,000. In 2013, when they have wages of $100,000, they sell the home for $1.5 million.  After subtracting the $100,000 cost of the home and the $500,000 exclusion they have investment income of $900,000. That plus their wages puts them $750,000 over the $250,000 AGI limit, and they would owe $28,500 in extra tax. 

EXAMPLE 6 

A single person bought a house many years ago for $50,000 and sells it for $350,000 next year, after subtracting the $50,000 cost and the $250,000 exclusion, the investment income is $50,000. If this taxpayer has $150,000 or less of other income, no extra tax will be owed. But if he earns $150,000 of wages and has $20,000 of dividends and interest, then he would owe extra tax on $20,000, or $760. 

The new tax imposition will greatly affect your final income.  Experts are advising all home owners to make a move this year to avoid the new 3.8% surtax. If you are planning to sell in the future, it's better to do it this year!!!