• filter:

Tax Question: Medicare Surtax and Capital Gains

  • Page :
  • 1
  • Text Only
  • Search this Topic »
Voting History
rated:
Hi,

I am considering liquidating some mutual fund positions I have in a taxable brokerage account, but just learned about the 3.8% medicare surtax on AGI over $200,000.  Setting aside the capital gains, I would guesstimate my AGI next year at about $150,000 which means that I should be able to sell up to $50,000 in capital gains without incurring the additional tax.  There is one additional piece of the puzzle though that confuses me.  I also sold a home this year on which I probably had about $30,000 of capital gains.  I will have met the criteria to get the primary residence exemption on taxes paid on those gains, but the part that isn't clear to me, is if that number still gets counted in my AGI for the purposes of the Medicare Surtax.  In other words, does this mean that I can only incur $20,000 of capital gains before the surtax kick in, even though I don't pay taxes on the $20,000?

Thanks!

Member Summary
Staff Summary
Thanks for visiting FatWallet.com. Join for free to remove this ad.

rated:
I don't know the answer, but this is a very interesting question. I hope someone can help you.

rated:
You could approximate it by modeling it in last years TurboTax or something like it.

rated:
Actually, I think that I found my answer. According to this link: https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-residence-real-estate-tax-tips, it looks like the sale doesn't even need to be reported if all of the gain can be excluded. If it doesn't even need to be reported I don't see how it can count against AGI. So, this is good news I think.

rated:
investingstuff1971 said:   Actually, I think that I found my answer. According to this link: https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-residence-real-estate-tax-tips, it looks like the sale doesn't even need to be reported if all of the gain can be excluded. If it doesn't even need to be reported I don't see how it can count against AGI. So, this is good news I think.
The home gain might be excluded, but the other gains would not.  So you still might have a problem.

rated:
I'm not entirely clear on the facts, but the principal residence gain exclusion is an exclusion from income. So it wouldn't be included in AGI.

rated:
This may be one of my last posts here on FWF but here goes.
I am sick and tired of people just guessing answers to questions posted here.
They further degrade an already degraded situation on FWF.
It has become more like facebook with everybody thinking everybody wants to hear their ignorant thoughts!

Here is the REAL answer to op's legitimate question:
3.8% medicare surcharge on the SMALLER the amount by which MAGI (NOT AGI) exceeds  $250,000 (200k single) OR “net investment income”.
This Medicare tax surcharge is even if you are not enrolled in Medicare now!!!
see “Other Taxes” on Line 60 of your Form 1040

Investment income includes:
    taxable interest and dividends,
    long and short term capital gains,
    annuity income.
Investment income does NOT include:
    IRA Distributions
    Roth conversions
    home sale profit

If your joint net taxable income does not exceed 250k, then simply look at your line 22 on form 1040.
This is your MAGI.
Everything below this line does NOT count towards this NIT 3.8% surcharge tax.

Goodbye folks!

rated:
There is yet another medicare tax/surcharge.  If your MAGI exceeds $85 K single or $170 k married, your medicare part b and d monthly charges will go up in two years, because there is a two year look-back.

rated:
sloppy1 said:   This may be one of my last posts here on FWF but here goes.
I am sick and tired of people just guessing answers to questions posted here.
They further degrade an already degraded situation on FWF.
It has become more like facebook with everybody thinking everybody wants to hear their ignorant thoughts!

Here is the REAL answer to op's legitimate question:
3.8% medicare surcharge on the SMALLER the amount by which MAGI (NOT AGI) exceeds  $250,000 (200k single) OR “net investment income”.
This Medicare tax surcharge is even if you are not enrolled in Medicare now!!!
see “Other Taxes” on Line 60 of your Form 1040

Investment income includes:
    taxable interest and dividends,
    long and short term capital gains,
    annuity income.
Investment income does NOT include:
    IRA Distributions
    Roth conversions
    home sale profit

If your joint net taxable income does not exceed 250k, then simply look at your line 22 on form 1040.
This is your MAGI.
Everything below this line does NOT count towards this NIT 3.8% surcharge tax.

Goodbye folks!

Ironically, there are several things wrong in this answer.  First, profit from primary residence sales ARE included for NIIT and taxed at 3.8%, but only the part after the exclusion (i.e. 250k or 500k).  Also line 22 is not MAGI.  The 200k threshold applies to the AGI from line 37 with certain foreign income exclusions added back if you have them.

Finally, he's right that Roth conversions are excluded from NIIT, but it still does add to AGI.  This is closer to what the OP asked - if you are close to the 200k threshold where half your investment income is below and half above, then any increase to AGI will cause more of the half below to be taxed at 3.8%.
  

rated:
libralibra said:    This is closer to what the OP asked - if you are close to the 200k threshold where half your investment income is below and half above, then any increase to AGI will cause more of the half below to be taxed at 3.8%.
  
 


This is not correct (as I understand it).

From:
https://www.irs.gov/uac/newsroom/net-investment-income-tax-faqsT... a single filer, has $180,000 of wages. Taxpayer also received $90,000 from a passive partnership interest, which is considered Net Investment Income. Taxpayer’s modified adjusted gross income is $270,000.Taxpayer’s modified adjusted gross income exceeds the threshold of $200,000 for single taxpayers by $70,000. Taxpayer’s Net Investment Income is $90,000.The Net Investment Income Tax is based on the lesser of $70,000 (the amount that Taxpayer’s modified adjusted gross income exceeds the $200,000 threshold) or $90,000 (Taxpayer’s Net Investment Income). Taxpayer owes NIIT of $2,660 ($70,000 x 3.8%). -------------

My recommendation for anybody trying to do any kind of tax planning is to run some mock calculations through the tax software. I thought I understood the tax rules but when I compared my spreadsheet to what the program spit out, I had a few surprises.

-----
The other thing to look are is AMT / ST gains versus LT gains. Leaving it to tax software to figure it out.

rated:
sloppy1 said:   This may be one of my last posts here on FWF but here goes.
I am sick and tired of people just guessing answers to questions posted here.
They further degrade an already degraded situation on FWF.
It has become more like facebook with everybody thinking everybody wants to hear their ignorant thoughts!

Here is the REAL answer to op's legitimate question:
3.8% medicare surcharge on the SMALLER the amount by which MAGI (NOT AGI) exceeds  $250,000 (200k single) OR “net investment income”.
This Medicare tax surcharge is even if you are not enrolled in Medicare now!!!
see “Other Taxes” on Line 60 of your Form 1040

Investment income includes:
    taxable interest and dividends,
    long and short term capital gains,
    annuity income.
Investment income does NOT include:
    IRA Distributions
    Roth conversions
    home sale profit

If your joint net taxable income does not exceed 250k, then simply look at your line 22 on form 1040.
This is your MAGI.
Everything below this line does NOT count towards this NIT 3.8% surcharge tax.

Goodbye folks!

 
You would think that sloppy answers from sloppy fwers would appeal to you - given your fwuser id
 

rated:
PrincipalMember said:   
libralibra said:    This is closer to what the OP asked - if you are close to the 200k threshold where half your investment income is below and half above, then any increase to AGI will cause more of the half below to be taxed at 3.8%.
  


This is not correct (as I understand it).

From:
https://www.irs.gov/uac/newsroom/net-investment-income-tax-faqsTaxpayer, a single filer, has $180,000 of wages. Taxpayer also received $90,000 from a passive partnership interest, which is considered Net Investment Income. Taxpayer’s modified adjusted gross income is $270,000.Taxpayer’s modified adjusted gross income exceeds the threshold of $200,000 for single taxpayers by $70,000. Taxpayer’s Net Investment Income is $90,000.The Net Investment Income Tax is based on the lesser of $70,000 (the amount that Taxpayer’s modified adjusted gross income exceeds the $200,000 threshold) or $90,000 (Taxpayer’s Net Investment Income). Taxpayer owes NIIT of $2,660 ($70,000 x 3.8%). -------------

My recommendation for anybody trying to do any kind of tax planning is to run some mock calculations through the tax software. I thought I understood the tax rules but when I compared my spreadsheet to what the program spit out, I had a few surprises.

-----
The other thing to look are is AMT / ST gains versus LT gains. Leaving it to tax software to figure it out.

  
Yes, this is what I've come to understand as well (though I don't know why you think that it's different than what libralibra is saying).  Thanks!

rated:
PrincipalMember said:   
libralibra said:    This is closer to what the OP asked - if you are close to the 200k threshold where half your investment income is below and half above, then any increase to AGI will cause more of the half below to be taxed at 3.8%.
  


This is not correct (as I understand it).

From:
https://www.irs.gov/uac/newsroom/net-investment-income-tax-faqsTaxpayer, a single filer, has $180,000 of wages. Taxpayer also received $90,000 from a passive partnership interest, which is considered Net Investment Income. Taxpayer’s modified adjusted gross income is $270,000.Taxpayer’s modified adjusted gross income exceeds the threshold of $200,000 for single taxpayers by $70,000. Taxpayer’s Net Investment Income is $90,000.The Net Investment Income Tax is based on the lesser of $70,000 (the amount that Taxpayer’s modified adjusted gross income exceeds the $200,000 threshold) or $90,000 (Taxpayer’s Net Investment Income). Taxpayer owes NIIT of $2,660 ($70,000 x 3.8%). -------------

My recommendation for anybody trying to do any kind of tax planning is to run some mock calculations through the tax software. I thought I understood the tax rules but when I compared my spreadsheet to what the program spit out, I had a few surprises.

-----
The other thing to look are is AMT / ST gains versus LT gains. Leaving it to tax software to figure it out.

  This is what libralibra is saying. All investment income is taxed at 3.8% to the extent that it pushes the taxpayer above 200k MAGI. If your wages increase by one dollar, it increases the amount of investment income subject to the tax by one dollar.

Also, humorous that sloppy's answer was blatantly wrong on so many counts.

rated:
marginoferror said:   
PrincipalMember said:   
libralibra said:    This is closer to what the OP asked - if you are close to the 200k threshold where half your investment income is below and half above, then any increase to AGI will cause more of the half below to be taxed at 3.8%.
  


This is not correct (as I understand it).

From:
https://www.irs.gov/uac/newsroom/net-investment-income-tax-faqsTaxpayer, a single filer, has $180,000 of wages. Taxpayer also received $90,000 from a passive partnership interest, which is considered Net Investment Income. Taxpayer’s modified adjusted gross income is $270,000.Taxpayer’s modified adjusted gross income exceeds the threshold of $200,000 for single taxpayers by $70,000. Taxpayer’s Net Investment Income is $90,000.The Net Investment Income Tax is based on the lesser of $70,000 (the amount that Taxpayer’s modified adjusted gross income exceeds the $200,000 threshold) or $90,000 (Taxpayer’s Net Investment Income). Taxpayer owes NIIT of $2,660 ($70,000 x 3.8%). -------------

My recommendation for anybody trying to do any kind of tax planning is to run some mock calculations through the tax software. I thought I understood the tax rules but when I compared my spreadsheet to what the program spit out, I had a few surprises.

-----
The other thing to look are is AMT / ST gains versus LT gains. Leaving it to tax software to figure it out.

  This is what libralibra is saying. All investment income is taxed at 3.8% to the extent that it pushes the taxpayer above 200k MAGI. If your wages increase by one dollar, it increases the amount of investment income subject to the tax by one dollar.

Also, humorous that sloppy's answer was blatantly wrong on so many counts.

  
[Bad Info Removed]

rated:
investingstuff1971 said:   As is so often the case, the IRS wording makes it seem more complicated than it is.  You basically owe the tax on your AGI above $200,000 (for single filer).
  Not even close.  You gotta have net investment income.  You can theoretically have a gagillion dollars of AGI, but owe no NIIT.

rated:
tuphat said:   
investingstuff1971 said:   As is so often the case, the IRS wording makes it seem more complicated than it is.  You basically owe the tax on your AGI above $200,000 (for single filer).
  Not even close.  You gotta have net investment income.  You can theoretically have a gagillion dollars of AGI, but owe no NIIT.

  
Yes, you're right!  I lost track of that minor detail for a moment

rated:
investingstuff1971 said:   
PrincipalMember said:   
libralibra said:    This is closer to what the OP asked - if you are close to the 200k threshold where half your investment income is below and half above, then any increase to AGI will cause more of the half below to be taxed at 3.8%.
  


This is not correct (as I understand it).

From:
https://www.irs.gov/uac/newsroom/net-investment-income-tax-faqsTaxpayer, a single filer, has $180,000 of wages. Taxpayer also received $90,000 from a passive partnership interest, which is considered Net Investment Income. Taxpayer’s modified adjusted gross income is $270,000.Taxpayer’s modified adjusted gross income exceeds the threshold of $200,000 for single taxpayers by $70,000. Taxpayer’s Net Investment Income is $90,000.The Net Investment Income Tax is based on the lesser of $70,000 (the amount that Taxpayer’s modified adjusted gross income exceeds the $200,000 threshold) or $90,000 (Taxpayer’s Net Investment Income). Taxpayer owes NIIT of $2,660 ($70,000 x 3.8%). -------------

My recommendation for anybody trying to do any kind of tax planning is to run some mock calculations through the tax software. I thought I understood the tax rules but when I compared my spreadsheet to what the program spit out, I had a few surprises.

-----
The other thing to look are is AMT / ST gains versus LT gains. Leaving it to tax software to figure it out.
 

  
Yes, this is what I've come to understand as well (though I don't know why you think that it's different than what libralibra is saying).  Thanks!

  
I believe that according to libralibra, in this particular example, you would be paying the 3.8% on the 90K.

  • Quick Reply:  Have something quick to contribute? Just reply below and you're done! hide Quick Reply
     
    Click here for full-featured reply.


Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017