The 3.8% Medicare surtax won't apply to all home sale profits after 2012.
Many readers tell us they've received e-mails or read newspaper articles asserting that gains on all home sales will be hit by a 3.8% tax. That is incorrect.
Most gains on sales of primary residences will be exempt. Only the portion of profits that exceeds the $250,000 or $500,000 exclusion will be subject to the tax. And only higher incomers will owe the surtax... singles with adjusted gross incomes over $200,000 or joint filers with AGls above $250,000. The 3.8% surtax is levied on the smaller of the filer's net investment income (including taxable capital gains) or the excess of the taxpayer's adjusted gross income over the threshold amounts.
But profits on sales of rental properties and second homes will be hit by the surtax, assuming that the seller's adjusted gross income is large enough.
-- August 5, 2011 Kiplinger Tax Letter
