There is one more important thing about yesterday’s Supreme Court ruling upholding the Patient Protection and Affordable Care Act and that is a new investment tax. There is a new 3.8% surcharge on investment income in excess of $250,000 (married couple). It will go into effect on January 1, 2013.
If you have Adjusted Gross Income in excess of $250,000 from the following sources, you are subject to the tax. According the the WSJ it includes:
Absent guidance from the IRS, experts believe the tax appears to apply to dividends; rents; royalties; interest, except municipal-bond interest; short- and long-term capital gains; the taxable portion of annuity payments; income from the sale of a principal home above the $250,000/$500,000 exclusion; a net gain from the sale of a second home; Schedule C income from businesses; and passive income from real estate and investments in which a taxpayer doesn’t materially participate, such as a partnership.
The tax doesn’t include payouts from a regular or Roth IRA, 401(k) plan or pension; Social Security income; or annuities that are part of a retirement plan. Also not included are life-insurance proceeds; municipal-bond interest; veterans’ benefits; or income from a business on which you are paying self-employment tax, such as a Subchapter S firm or a partnership.
Look for a lot of wrangling and political posturing about this.
Tanks for reminding us, Mr Harding…
I wonder why these morons could not have round up to 4%?
It effectively increase long term capital gain by 33%…
On a sad note, Jimmy Rogers, has moved to the far east, essentially giving up on America…
I do not view that as a positive development..
Hans-
Jim Rogers moved to Singapore about 5 years ago. He sold his Belle Epoque mansion uptown in Manhattan at the top of the market. Last I heard him comment, he remains an American citizen. His comment on his move was that he wanted his children to grow up speaking Mandarin.
Re the tax, this feature is one of many reasons I moved into munis last year, and added to them this year. I think there’s a good to very good chance that the “Bush tax cuts” get extended for (say) 6-12 months to “help the economy”, but I think the Obamacare taxes will go into effect (just my opinion). May I add to the WSJ comments that I presume that the 3.8% tax surcharge would apply to municipal bond interest only if said municipal bond is a “tax-exempt”. I would guess that the interest paid by taxable munis would be subject to the tax. This isn’t tax advice, but that’s my guess. I will correct the record on this blogsite if I’m wrong on this guess.
doctorx,
Don’t you mean to say the 3.8% surcharge would not apply to tax free municipals?