Health Care Reform Adds New Real Estate Investment Tax

With the House of Representatives´ narrow passage of health care reform over the weekend came additional tax increases for the small investor in real estate. A new 3.9 percent Medicare Payroll Tax will be imposed on income from rents, capital gains, interest, dividends, annuities and royalties for individuals who earn more than $200,000 annually and joint filers reporting more than $250,000. Just like the Alternative Minimum Tax, which Congress has to adjust each year to protect millions of households, this new tax is not indexed for inflation, so as incomes rise over time, more taxpayers will incur the tax.

While the bill increased taxes on one form of real estate investment, it did not include the proposal to increase the tax on carried interest as a revenue offset. However, as Congress seeks additional revenue to help pay for additional programs, many believe there may be additional taxes at both the state and national level to help pay the impact the health care reform measures will have on the deficit.