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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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Customer Question

Team, Concerning the new 3.8 % Medicare Tax,do we need to pay it? I believe we should be considered a Real Estate Professional My wife and have two retail Shopping centers and 4 Residential houses, I understand we need to spent over 751 hours per year on this real estate to in order not to pay the new tax. We have property managers but still we spent a lot of time dealing with insurance issues and driving 500 miles per month to visit the properties to take care of issues and dealing with the different managers When on vacation I can not escape it I still need to receive emails and answers questions. I am 72 and my wife 64 and the net income from these properties is our only income plus social Security and some income from stocks. When we sell one of these properties and do a search for a compatible 1031 exchange we work 15-16 hours a day to find a new property and do a lot of traveling. if you have any questions please ask. Joe [email protected] XXX-XXX-XXXX

Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi and welcome to Just Answer!
"3.8 % Medicare Tax" that you referred is officially named the Net Investment Income Tax (NIIT) which went into effect on Jan. 1, 2013. The NIIT will affect income tax returns of individuals, estates and trusts for their first tax year beginning on (or after) Jan. 1, 2013. It will not affect income tax returns for the 2012 taxable year that will be filed in 2013.


Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over a certain thresholds - assuming you are filing a joint tax return - the threshold amount is $250,000.

LEV :

If you are Real Estate Professionals - that makes no difference - unless you are in real estate business and report all your income as business income on schedule C.
If however - that is your Investment Income and your modified adjusted gross income is more than $250,000 - you will be subject of NIIT.

LEV :

To the extent that gains are not otherwise offset by capital losses - gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence) - is taken into account in computing Net Investment Income.
The gain that is not recognized because of section 1031 exchange - is not subject of NIIT.

LEV :

Let me know if you need any clarification or if you need any help to estimate your possible tax liability.

JACUSTOMER-ec183e4z- :

please send my answer as i paid $35.00 for it

Expert:  Lev replied 3 years ago.

Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

 

LEV : Hi and welcome to Just Answer! "3.8 % Medicare Tax" that you referred is officially named the Net Investment Income Tax (NIIT) which went into effect on Jan. 1, 2013. The NIIT will affect income tax returns of individuals, estates and trusts for their first tax year beginning on (or after) Jan. 1, 2013. It will not affect income tax returns for the 2012 taxable year that will be filed in 2013. Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over a certain thresholds - assuming you are filing a joint tax return - the threshold amount is $250,000.

LEV : If you are Real Estate Professionals - that makes no difference - unless you are in real estate business and report all your income as business income on schedule C. If however - that is your Investment Income and your modified adjusted gross income is more than $250,000 - you will be subject of NIIT.

LEV : To the extent that gains are not otherwise offset by capital losses - gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence) - is taken into account in computing Net Investment Income. The gain that is not recognized because of section 1031 exchange - is not subject of NIIT.

LEV : Let me know if you need any clarification or if you need any help to estimate your possible tax liability.

Customer: replied 3 years ago.

lev I have a question

Expert:  Lev replied 3 years ago.
Please post your question.
I am here to help you.
I will address all your tax related questions.