Tax Law Changes

The health care legislation enacted in 2013 included a new tax that was designed to affect upper income taxpayers.
The 3.8 percent tax is imposed ONLY on those with more than $200,000 of adjusted gross income (AGI) ($250,000 on a joint return).
The tax applies to investment income, defined as interest, dividends, capital gains and net rents. These items are all included in an individual’s AGI.
The new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax.

Generally, Net Investment Income will include interest, dividends,capital gains, annuities,royalties and rents and other income attributable to passive activities.
Gains on the sale of property not used in an active business and income from the investment of working capital are treated as investment income.
Net Investment Income is gross income or net gain reduced by deductions allocated to the income or gain.
It does not include distributions from qualified plans,401(k) plans, IRS's, and eligible 457 plans or municipal bond interest or life insurance proceeds.
The tax will not apply to the first $250,000 on profits from the sale of a personal residence, or to the first $500,000 in the case of a married couple selling their home.

The 3.8% tax on Investment income will fall on individuals with an (AGI) adjusted gross income above $200,000 and couples filing a joint tax return with more than $250,000 AGI.
The calculation will be the LESSER of the Investment income amount OR the Excess of AGI over the $200,000 or $250,000 thresholds.

The .9% (0.009) tax is imposed ONLY on the excess of Earned Income above the threshold amounts. The threshold amounts for individuals is $200,000 and $250,000 on a joint tax return.
Generally, Earned Income is money you earned on your labor such as wages, salaries, commissions. It includes wages and self-employment income

Only a small percentage of home sellers will pay the 3.8% surtax. Only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. The tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.
The tax calculation will be the LESSER of the Investment income amount OR the Excess of AGI over the $200,000 or $250,000 thresholds x 3.8%.

The annual gift tax exclusion increases to $14,000 in 2013, up from $13,000 in 2012.

The amount used to reduce the net unearned income reported on a childs tax return subject to the kiddie tax has increased to $1,000, up from $950 in 2012.

The foreign earned income exclusion rose to $97,600 up from $95,100 in 2012.

The AGI phase-out range for tax payers making contributions to their Roths is between $173,000 and $183,000 for jointly filing couples, a $3,000 increase from 2011. The same increase is true for singles filing. The range is $110,000 to $125,000.
Married individual who file separately and have been actively participating in an employer-sponsored retirement plan should see no changes in the phase-out range. It stayed the same as the previous year: $0 to $10,000.