The rumors are flying again about the 3.8% Medicare tax in the health care reform law. The messages say the tax is imposed on unearned income that includes the sale of a principle residence. But what you need to know is that the tax is actually far narrower and the $250,000-$500,000 capital gains exclusion for primary residences remains in place.
Understand that this tax WILL NOT be imposed on ALL real estate transactions, a common misconception. Rather, when the legislation becomes effective in 2013, it may impose a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). And the tax will fall only on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.