Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Oct 14

    Q. My husband and I sold our home on Fowl River that we purchased in 1973 for $459,000, and reinvested the profits in a smaller condo in town. Will we be required to pay the new 3.8% Medicare surtax (now referred to as the net investment income tax) on the gain? I understand it applies when your income is above $250,000.

    A. The 3.8% net investment income tax applies to the lesser of the net investment income for the year, or the excess of modified adjusted gross income over the $250,000 threshold. However, it does not apply to items, such as the gain on the sale of your personal residence, which do not have to be reported on your tax return.

    Do you have a question for the Taxpert that you’d like to see answered in a future Taxing Times? Or perhaps just an issue you’d like the Taxpert to address? Send the Taxpert a note to Taxing Times, 1050 Hillcrest Rd., Ste A, Mobile, AL 36695 or an email to

  • Aug 7

    with Ashley Brown

    Really… Another Tax? Sorry, but yes, the same people that brought you Obamacare ushered in the 3.8% Medicare Surtax, which took effect January 1, 2013. For the first time ever there is a Medicare surtax on your “net investment income” and capital gains from the disposition of property.  It does not apply to income from a trade or business or from the sale of property used in a trade or business. The Medicare Surtax applies to the lesser of your net investment income or the amount of “modified” adjusted gross income (AGI with foreign income added back) above a specified threshold.

    After you calm down from grumbling about a new tax, you might ask… What is “net investment income” (NII)? Net investment income is the gross income from interest, dividends, annuities, royalties, and rents provided the income is not generated in the ordinary course of an active trade or business. It is also gross income from a trade or business that is considered a passive activity, gross income from a trade or business of trading in financial instruments or commodities, and net gain from the disposition of property, other than property held in an active trade or business.

    How does it work? As stated above, the tax applies to the lesser of the taxpayer’s net investment income or the amount of “modified” adjusted gross income above certain thresholds. Those adjusted gross income thresholds are:

    • $250,000 for married taxpayers filing jointly or surviving spouse
    • $125,000 for married taxpayers filing separately, and
    • $200,000 for single and head of household taxpayers

    Example: A single taxpayer has modified AGI of $250,000, including net investment income of $30,000. The Medicare Surtax applies to the lesser of the net investment income ($30,000) or the excess of AGI over the applicable threshold ($250,000 – $200,000 = $50,000). Thus, the Medicare Surtax applies to $30,000.

    How can you avoid or minimize this new tax? In a word… planning. Plan ahead, consult with us, when you’re expecting a large windfall, or when selling long held investment assets. There are usually options available in the planning stages. But once completed… there may not be any choice but to report the transaction as it occurred.

    Now might be a good time to change the source of some of your income to help reduce the risk of paying this additional tax. One might consider investing in tax-exempt bonds. The reasoning behind investing in tax-exempt bonds is the interest income would not be included in the AGI or net investment income. Some might consider investing in tax-deferred annuities. Others might consider investing in rental real estate. Even though rental real estate is considered a passive activity, rental real estate usually generates a net loss after depreciation, so there would be no net investment income to tax. If you believe that you might be affected by the new Medicare Surtax, make an appointment with us to discuss how you might be able to reduce or avoid paying all-together the additional 3.8% tax.