Q. I’ve heard that funding Obamacare requires a huge tax on real estate transactions. Does that mean that when I sell my house I’m going to get stuck with a big tax bill to pay for everyone else’s healthcare?
A: In most circ*mstances, no. This is because the ACA’s Net Investment Income Tax (NIIT) only applies to those with fairly high incomes, and because a significant amount of real estate profit is excluded from capital gains. Here’s how it works:
If your income is under $250,000 for married couples filing jointly, or $200,000 for individual filers, you are not subject to the NIIT. Although those income thresholds are not indexed for inflation, they still exempt nearly all Americans from this tax, regardless of whether they sell a home. (A household income of $250,000 would put you in the top 8% of all households in the U.S.)
For people who do have incomes that exceed those amounts, the NIIT is 3.8% of capital gains (profit) on real estate transactions and other investment income such as interest, dividends, rental income, capital gains from stock sales, etc.
The first $250,000 (for an individual; $500,000 for married couples filing jointly) in profit on the sale of a primary residence is excluded from the tax. But if a vacation or investment property is sold, all profits are subject to the tax. Keep in mind, however, that profit is not the same thing as sale price. The tax only applies to profits from the sale.
The income threshold means that most people are exempt. And the further exemption for the first $250,000 ($500,000 for married couples) in profits means that even in the high-income demographic, most people are not on the hook for the Net Investment Income Tax if they sell their primary home.
Note that the ACA also imposed an Additional Medicare Tax of 0.9%. The standard Medicare tax rate is 1.45%, which is payroll deducted from wages that people earn. But for people who earn more than $200,000 (or $250,000 for married couples filing jointly), the Medicare tax increases to 2.35%. For self-employed people at that income level, the Medicare tax is 3.8%; the normal rate for self-employed people is 2.9%, but the Additional Medicare Tax adds another 0.9%.
Most very wealthy Americans earn the bulk of their income from investments rather than wages, which means that they’re subject to the Net Investment Income Tax. But there’s a loophole that exempts profit distributions for partnerships and S-Corps from being subject to the Net Investment Income Tax. And since they aren’t considered wages either, they’re also not subject to the Additional Medicare Tax.
Congress has considered closing this loophole, and this Congressional Budget Office analysis depicts how much additional revenue would be generated if they did so.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.
FAQs
For people who do have incomes that exceed those amounts, the NIIT is 3.8% of capital gains (profit) on real estate transactions and other investment income such as interest, dividends, rental income, capital gains from stock sales, etc.
Does selling a house count as income for Obamacare? ›
Basically, the higher the MAGI, the lower the premium subsidy received. So, if someone receiving insurance through the Health Insurance Marketplace sells a house or other capital asset property in a given year, the capital gains on that sale are part and parcel of the modified adjusted gross income.
What does Obamacare tax apply to? ›
The 3.8% ACA tax on net investment income applies to unincorporated taxpayers (basically individuals, estates, and certain trusts) who have a modified adjusted gross income (MAGI) above these annual income levels: $250,000 in the case of married taxpayers filing a joint return or a surviving spouse.
What is the 3.8 surtax for Obamacare? ›
A Medicare surtax of 3.8% is charged on the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over a set threshold amount. The threshold is $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all other filers.
Do assets count as income for Obamacare? ›
Obamacare considers both income and assets when determining eligibility for insurance coverage. Income is a key factor for assessing subsidies, and assets are taken into consideration when calculating the Modified Adjusted Gross Income (MAGI).
What is the Medicare tax on capital gains for Obamacare? ›
The Net Investment Income Tax (“NIIT”) or Medicare Tax is a 3.8% surtax imposed by Section 1411 of the Internal Revenue Code on investment income.
Does sale of property count as income? ›
If you owned and lived in the home for a total of two of the five years before the sale, then up to $250,000 of profit is tax-free (or up to $500,000 if you are married and file a joint return). If your profit exceeds the $250,000 or $500,000 limit, the excess is typically reported as a capital gain on Schedule D.
Does the sale of a house count as income for Medicare premiums? ›
Fortunately, the IRS allows homeowners who sell their primary residence to exclude up to $250,000 of the gain from their income ($500,000 if married filing jointly). Exempt capital gains do not count toward MAGI income, so they do not affect Medicare premiums.
Does selling things on marketplace count as income? ›
Your earned money from selling on Marketplace could be subject to taxes. Even if you don't claim the income when you file your annual taxes, we will submit a Form 1099 and report your income to the IRS.
What income is used to determine Obamacare subsidy? ›
Under the Affordable Care Act, eligibility for subsidized health insurance is calculated using a household's Modified Adjusted Gross Income (MAGI). You are expected to pay a premium contribution limit (a percentage of your annual income) for healthcare coverage.
Cons
- Many people have to pay higher premiums. ...
- You can be fined if you don't have insurance. ...
- Taxes are going up as a result of the ACA. ...
- It's best to be prepared for enrollment day. ...
- Businesses are cutting employee hours to avoid covering employees.
The income range is $30,000 to $120,000 in 2024 for a family of four. (Income limits may be higher in Alaska and Hawaii because the federal poverty level is higher in those states.) The American Rescue Plan Act of 2021 also extended subsidy eligibility to some people earning more than 400% of the federal poverty level.
At what income level does the 3.8 surtax kick in? ›
The tax applies to taxpayers with modified adjusted gross income (MAGI) in excess of $200,000 if single or head of household and $250,000 if married filing jointly ($125,000 for married filing separately). The income thresholds are not adjusted annually for inflation.
Do you have to pay back the Obamacare tax credit? ›
If you use more advance payments of the tax credit than you qualify for based on your final yearly income, you must repay the difference when you file your federal income tax return. If you use less premium tax credit than you qualify for, you'll get the difference as a refundable credit when you file your taxes.
What is the ACA surcharge for capital gains? ›
The NIIT is a 3.8% tax that applies to individuals, estates, and trusts that have net investment income above certain threshold amounts. For individuals, these thresholds are $200,000 for single filers and $250,000 for married couples filing jointly.
Do capital gains count as income? ›
Capital gains are generally included in taxable income, but in most cases, are taxed at a lower rate. A capital gain is realized when a capital asset is sold or exchanged at a price higher than its basis.
Are capital gains subject to Medicare Surtax? ›
Examples of investment income that is subject to the NIIT include dividends, interest, passive income, annuities, royalties and capital gains. The 3.8% tax applies to the lesser of either your net investment income or the amount by which your MAGI exceeds $200,000 (or $250,000 for joint filers).
What is the 3.8% net investment tax under Obamacare? ›
Effective Jan. 1, 2013, individual taxpayers are liable for a 3.8 percent Net Investment Income Tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount based on their filing status.
