The Medicare Tax is a 3.8% tax that goes into effect January 1, 2013 and it does not apply to all Hilton Head owners.  Only “high income” owners with Adjusted Gross Incomes(AGI) of more than $200,000 for individuals or more than $250,000 for married couples will have to deal with this new tax. As well, it does not apply to principle residences under $500,000 held jointly or $250,000 for a single.  We suggest checking with your financial counselors to see if it is beneficial to sell before this new tax is put into place.  The reason it is called a Medicare Tax is that this money will be allocated to the Medicare Trust Fund that is part of the Social Security System.

What about a principal residence on Hilton Head?

Any gain from the sale of a principal residence that is less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded from the income tax. The new 3.8% tax will NOT apply to this excluded amount of the gain.

What about the sale of vacation property on Hilton Head?

The application of the tax will depend on whether the vacation home has been rented out, the period for which it has been rented and whether the property is solely for the enjoyment of the owner. If the owner has rented the home out to others, then the 14-day rent exclusion will continue to apply. Thus, if the owner rents the property to others (including family members) for 14 or fewer days, there would be no net investment tax. (Note that no deductions for expenses would be available, as under current law.) If the home has been rented to others (including family members) for more than 14 days, then the rents (minus related expenses) would be considered as part of net investment income and could, depending on AGI and the calculations described above, be subject to the new tax.

Vacation Homes on Hilton Head with no rental income

If the vacation home has been used solely for personal enjoyment (i.e., there is no rental income and no associated expenses), then a gain on sale would be treated as net investment income and could be subject to the tax, depending on AGI. Similarly, if the property had generated rents, any net gain on sale could also be included in net investment income. The amount of the tax (if any) would depend on the calculation formula.

Professional Advice from your accountant

Property owners that think that the Medicare Tax may apply should speak with an accountant or their financial advisor.  There may be benefits for sellers in 2012.  We  have attached a fairly simple explanation from NAR regarding the 3.8% tax which takes effect in 2013 and a great question and answer review.  Please read it carefully because the new tax DOES NOT APPLY to all homes.  There has been inaccurate information that has been passing around the internet for the last year about this.

Contact your Financial Advisor or Paul Griz 

Paul Griz with Lighthouse Accounting and Tax can be reached via email at or by phone at (843)815-4749. Feel free to contact him if you have questions about the Medicare Tax.  If you would like to contact Robbie Bunting Realtors, our email is or toll free 1-800-932-3652.  Thank you.