The monumental new health care legislation imposes a new Medicare tax on investment income collected by high-income individuals (SBTS, May 2010). However, the new tax doesn’t kick in until 2013.
Strategy: Plan ahead to reduce or avoid this extra tax. Conversely, if you wait a couple of years to make your moves, it may be too late.
To recap, you must pay a 3.8% Medicare tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over a $250,000 threshold ($200,000 for single filers), for tax years beginning after 2012 (see box below). “Net investment income” includes interest, dividends, royalties, rents, gains from dispositions of property and income from passive activities.
If you expect to clear the threshold in 2013, here are five long-term ideas:
1. Think about selling your home. You can exclude tax on the first $250,000 of gain from a home sale—$500,000 for joint filers—if yo...(register to read more)