Capital Gains Rates to Increase after 12/31/12

Spielman Koenigsberg & Parker, LLP, a leading New York accounting firm that we share clients with did a nice summary of the capital gains tax issues arising after December 31 2012.  They permitted me to post it here. 

 New 3.8% Medicare Tax on Investment Income

Through 2012, the maximum federal income tax rate on long-term capital gains and dividends is only 15%. Starting in 2013, the maximum rate on long-term gains is scheduled to rise to 20% and the maximum rate on dividends is scheduled to rise to 39.6% as the so-called Bush tax cuts expire.

But that’s not all. Starting in 2013, all or part of the net investment income, including long-term capital gains and dividends, collected by higher-income individuals can be hit with an additional 3.8% “Medicare contribution tax.” Therefore, the maximum federal rate on long-term gains for 2013 and beyond will actually be 23.8% (versus the current 15%) and the maximum rate on dividends will be 43.4% (versus the current 15%).

The additional 3.8% Medicare contribution tax will not apply unless your modified adjusted gross income (MAGI) exceeds: (1) $200,000 if you are unmarried, (2) $250,000 if you are a married joint-filer, or (3) $125,000 if you use married filing separate status. Furthermore, the additional 3.8% Medicare contribution tax will only apply to the lesser of your net investment income or the amount of MAGI in excess of the applicable threshold.

If you owe the additional 3.8% Medicare contribution tax, it should be taken into account in determining if you need to make quarterly estimated tax payments starting in 2013.

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