The housing market may indeed be recovering, as many experts suggest, but investors are still struggling to understand what, if any, taxes they'll owe upon selling their homes.

At issue is how the new "Medicare tax" will apply to real-estate transactions.

Passed in 2010 to help fund the health-care overhaul, this 3.8% surtax kicks in next year on many forms of investment income -- including some interest, dividends, rents and capital gains.

While its effect on home sales won't be as far-reaching as many fear, the Medicare tax could pack a punch for certain investors. It is not a sales tax. And it won't apply to home-sale gains excluded from income under current law. But it could affect investors with outsize gains or gains from the sale of a vacation home or investment property.

Determining whether you will be subject to the tax is no easy matter.

"The confusion lies in the fact that it's not a yes or a no," says Melissa Labant, director of tax for the American Institute of Certified Public Accountants. "It's a sometimes or a maybe."

"We're waiting for guidance from the IRS on a lot of specific issues," she adds. "We don't have all of the answers yet."

Here's what we do know:

The new tax will hit individuals with more than $200,000 in adjusted gross income, and married couples with adjusted gross income above $250,000 ($125,000 for married taxpayers filing separately). These thresholds are not indexed for inflation, so more people may be affected over time.

Specifically, the tax will apply to either your net investment income or the amount that your adjusted gross income exceeds the threshold -- whichever is less.

Moreover, any gain from the sale of a principal residence that is less than $250,000 (for individuals) or $500,000 (for married taxpayers filing jointly) will continue to be excluded from income, and anything that's excluded for income-tax purposes also is excluded for Medicare-tax purposes.

So, the Medicare tax will apply primarily to higher-income earners who realize gains that aren't sheltered by the exclusion amounts.

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Editor's Note: Just one more example of stealth taxation courtesy of the most transparent administration in American history...


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