Tax Guru – Ker$tetter Letter

From a client:

Kerry

This is worrisome. How will this work – Medicare tax on rents . . .. Do you suppose it will be on gross rents – that would totally clobber me.

The new 2.9 percent tax would apply to interest, dividend, annuity, royalty, and rent payments.

Under current law, Medicare payments come from salaries alone.

See Link for complete article.
http://moneynews.com/Headline/Obama-Tax-Wealthy-Healthcare/2010/03/11/id/352396

My response:

As you know, this entire thing is very fluid. Just like all of the bozos in DC, I haven’t read the actual 3,000 page bill that they voted on yesterday; but I have seen and heard various discussions of this particular proposal.

I have heard and seen it mentioned as anywhere from a 2.9% to 3.9% Medicare tax on investment income, which would include interest and dividends from Sch. B, capital gains from Sch. D, and rents from Sch. E. Some discussions claim it will only apply to people with AGI over $200,000 (aka the Evil Rich).

Whether it will be based on gross rents or net rental income is very unclear. From the practical viewpoint of how to actually collect that tax, I could see our rulers in DC just widening the coverage of the SE tax to be from just active earned income (normally Sch. C & F) to all kinds of income, including the net from Sch. E. There have been proposals over the past few years to add different types of income to SE tax coverage, such as from LLCs and LPs; so that would be somewhat consistent with that tactic for generating more revenue for our power mad DC rulers to spend.

As depressing as yesterday’s vote was for those of us who fear the continued growth of socialism in this country, I am still hopeful that this can be stopped before we have to actually pay this kind of new tax. I have heard many in the GOP claim that they will be able to use legal challenges to hold up implementation of this new law for several years. Hopefully, that will be the case; at least until after we can vote a non-communist president into the White House.

That’s the best I can say about it right now.

Kerry