Medicare Tax On Rental Income

Medicare Tax Formula:

\[ \text{Medicare Tax} = \max(0, (\text{Net Investment Income} \times 3.8\%)) \text{ if AGI} > \text{Threshold} \]

Adjusted Gross Income (AGI):

USD

Net Rental Income:

USD

Filing Status:

Medicare Tax:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Medicare Tax on Rental Income?

The Medicare tax on rental income is a 3.8% net investment income tax (NIIT) that applies to certain high-income taxpayers. It was introduced as part of the Affordable Care Act and applies to rental income when your modified adjusted gross income exceeds specific thresholds.

2. How Does the Calculator Work?

The calculator uses the Medicare tax formula:

\[ \text{Medicare Tax} = \begin{cases} \text{Net Rental Income} \times 3.8\% & \text{if AGI} > \text{Threshold} \\ 0 & \text{if AGI} \leq \text{Threshold} \end{cases} \]

Where:

$ \text{Net Rental Income} $ — Rental income after deducting expenses
$ \text{AGI} $ — Adjusted Gross Income
$ \text{Threshold} $ — $200,000 (single) or $250,000 (married filing jointly)
$ 3.8\% $ — Medicare tax rate on net investment income

Explanation: The tax only applies if your AGI exceeds the threshold for your filing status. The tax is calculated on the lesser of your net investment income or the amount by which your AGI exceeds the threshold.

3. Importance of Medicare Tax Calculation

Details: Understanding this tax helps real estate investors accurately estimate their tax liability and plan for quarterly estimated tax payments if necessary.

4. Using the Calculator

Tips: Enter your AGI and net rental income in USD, select your filing status. The calculator will determine if you owe the additional Medicare tax.

5. Frequently Asked Questions (FAQ)

Q1: What counts as net rental income?
A: Gross rental income minus expenses like mortgage interest, property tax, operating expenses, depreciation, and repairs.

Q2: Are there other types of income subject to this tax?
A: Yes, the tax also applies to other investment income like dividends, capital gains, interest, and passive business income.

Q3: Can rental losses offset this tax?
A: Only if you have other net investment income. The tax is calculated on net investment income after considering all applicable gains and losses.

Q4: Is this tax deductible?
A: No, the Medicare tax on investment income is not deductible against your income taxes.

Q5: How is this tax paid?
A: Through quarterly estimated tax payments or additional withholding on your W-4 if you're employed.