The tax increase is on "Income over 250K" not "People making 250K"

I've been trying to find a way to explain it and this looks really nice.

I never understand how this works. All of the tax things (even on local propositions here in CA) are written in terms of single filers. What about married folks? Does this mean married and making 500k per year? Or married and still 250k? In any case, i wish i had that kind of dough

http://ballotpedia.org/wiki/index.php/California_Proposition_30,_Sales_and_Income_Tax_Increase_%282012%29

I think this is related to the above (thanks for the explanation), as it concerns capital gains.

My mother (arch conservative) is despondent because she is currently trying to sell her house in Idaho after the passing of my dad. The house is worth quite a lot, having increased in value since the 1980s when it was built. She is likely to make more than $250,000 profit if it does sell (despite the slow market).

However, she doesn't have any income except my dad's Social Security check.

Will she have to pay the 3.8% tax on capital gains on the house sale if it's more than $250,000?

Thanks for the flat truth!

Dana

if she takes the proceeds from the sale and purchases other primary residence, the amount subject to the tax is the difference between the gain and the purchase price of the new residence.

But I would check with a tax accountant.

The 3.8% Medicare tax will only apply to taxpayers with an adjusted gross income (AGI) above $200,000 ($250,000 for a married couple) who have capital gains in excess of $250,000 ($500,000 for a married couple filing jointly).

If your mother sells her home, and her profit from the sale is $300,000, she would only owe the tax on the last $50,000. At a rate of 3.8%, that's $1,900.

It's a little complicated, so I recommend consulting a tax advisor.

Note that this tax takes effect on January 1, 2013, so if she sells her house before the end of this year, she will not have to worry about the Medicare tax at all.

Sources:
http://health.burgess.house.gov/uploadedfiles/one_page_on_unearned_medicare_tax.pdf

http://www.floridaselectrealestate.com/Blog/current%20month/22

Under current tax law, when you sell a home that was your primary residence, profits up to $250,000 for an individual or $500,000 for a married couple are exempt from capital gains tax. But amounts above those levels are subject to capital gains tax, which is currently 15%.

Can your mother still file a joint return with your late father for this year? If so, and she sells the house this year, her exemption would be $500,000. If the net capital gain is $300,000, she would owe no capital gains tax. But if she sells the house next year, when she files as an individual taxpayer, her exemption would only be $250,000, and she would owe 15%, or $7,500 on the $50,000 above that. It may be worthwhile to slightly under-price the house for a quick sale this year to avoid the capital gains tax, and the Medicare tax that takes effect next year.

But again, I'm not an accountant, and you should talk to a tax specialist about this. There may be special considerations in the case of the death of a spouse.

I always try explaining that the rich will pay the same taxes they do on the amount of income they make. It is perfectly fair and reasonable.

folks should be made aware that the increase is MARGINAL, but that's what you meant, right?

We need to be more informative when defending these tax increases.

People aren't taxed, income is taxed.

WTF ...people need to go back to high school and learn something for a change. Is it nessesary to explain gross and net profit? Say your net profit is going to go over $250k by $18k ...so hire one more person and pay them $15k and match the taxes and you still make $250k and pay no more than you did before you hired the extra person. Is it rocket science yet?

K and R

clarifying. An important distinction!