Part-time real estate investors facing new surtax

An investment surtax affecting so-called “passive” real estate investors, whose full time job is not managing their real estate portfolios, will likely take effect January 1, regardless of which presidential candidate wins the election.

The tax, which was approved by Congress in 2010 as a means to fund the new healthcare law, the Affordable Care Act, would likely affect investors who spend less than 500 hours a year managing their real estate holdings, the Wall Street Journal reported. Those investors could have to pay a 3.8 percent surtax on any rental income they receive from their properties. The specific regulations and criteria for establishing who has to pay the tax are still uncertain, though it is thought that the tax will only apply to those whose net income exceeds $200,000.

Thomas Nice, a tax partner at public accounting firm CohnReznick, told the Journal that professionals who view their real estate holdings as outside investments are most likely to be subject to the new tax. “Your dentists, your doctors, your lawyers…they’re not going to be able to meet” the 500-hour criteria, he said. “It’s going to be very difficult if they are working a full-time job to be able to qualify as a real-estate professional under this” code.

Even is the Obama’s healthcare act was to be repealed in a Romney administration, it would likely take considerable time to fully revoke the tax, the Journal said. The tax applies not just to real estate-related income but to all investment income. [WSJ] –Katherine Clarke