New Tax changes hurts rental real estate
For tax years beginning after Dec. 31, 2012, a 3.8% Medicare tax will be charged on net investment income. This applies to individuals with modified adjusted gross income in excess of $200,000 ($250,000 in the case of married persons filing jointly). Net investment income includes interest, dividends, annuities, royalties, rents, other income from a passive activity. This tax also applies to any gain from selling investment property.
Because rental income is generally considered passive income, rental income could be subject to the 3.8 percent tax. This could significantly decrease the rate of return for rental real estate. This 3.8% tax on top of Pres. Obama’s planned increase in Capital Gains rates after the election will force a further decline in business property values.