The 3.8% Medicare Contribution Tax on Unearned Income, Including Real Estate Transactions

Summary

The Health Care and Education Reconciliation Act of 2010 (HCERA, P.L. 111-152) contains a provision that will subject certain individuals to a 3.8% “unearned income Medicare contribution” tax beginning in 2013. The tax has been labeled by some as a “home sales tax” or “real estate tax.” The tax, however, is not exclusively limited to real estate transactions. Additionally, contrary to some reports, the tax does not apply to all real estate transactions. Some taxpayers that dispose of real estate may be exempt from the tax either because of income limitations or because of an exclusion provided for primary residence home sales. Other taxpayers may be subject to the tax even if they do not dispose of real estate. There have been proposals in the 112th Congress to repeal the tax, including H.R. 1549 and S. 1738. This report provides a summary of the tax and generalized examples of its application.