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Example 1
If John and Mary had a gain of less than $500,000 on the sale of their residence,
none of that gain would be subject to the 3.8% tax. Whether they paid the 3.8% tax
would depend on the other components of their $325,000 AGI.
NOTE:
Capital Gain: Sale of a Principal Residence
John and Mary sold their principal residence and realized a gain of $525,000.
Tey have $325,000 Adjusted Gross Income (before adding taxable gain).
Te tax applies as follows:
AGI Before Taxable Gain
$325,000
Gain on Sale of Residence
$525,000
Taxable Gain
(Added to AGI)
$25,000
($525,000 – $500,000)
New AGI
$350,000
($325,000 + $25,000 taxable gain)
Excess of AGI over $250,000
$100,000
($350,000 – $250,000)
Lesser Amount
(Taxable)
$25,000
(Taxable gain)
Tax Due
$950
($25,000 x 0.038)
In this example, only $10,000 of their capital gain is subject to the 3.8% tax.
If their gain had been smaller (less than $110,000), they would not pay the 3.8%
tax because their AGI would be less than $250,000.
NOTE:
Capital Gain: Sale of a Non-Real Estate Asset
Barry and Michelle inherited stocks and bonds that they have decided to liquidate. Te sale
of these assets generates a capital gain of $120,000. Teir AGI before the gain is $140,000.
Te tax applies as follows:
AGI Before Capital Gain
$140,000
Gain on Sale of Stocks and Bonds
$120,000
New AGI
$260,000
Excess of AGI over $250,000
$10,000
($260,000 – $250,000)
Lesser Amount
(Taxable)
$10,000
(AGI excess)
Tax Due
$380
($10,000 x 0.038)
Example 1
Example 2