Photo by Michael Baccin on Unsplash

Question:

Regarding capital gains taxes in Massachusetts: Say I bought my house many years ago for $500,000 and put in $250,000 of improvements. My base is $750,000. My wife and I sell the house for $2 million. We can exclude $500,000 of the gain, so we are taxed on $750,000 of capital gain from the sale. If my earned income, this year is $251,000 then do we pay 9% capital gains on the gain because my total is a dollar over $1 million? If my earned income were $249,000 then would we pay 5% on the $750,000 of capital gain ?

Response:

No, that’s not how the Massachusetts tax on income over $1 million, the so-called “millionaires” tax works. It’s not that once your taxable income exceeds $1 million that all your income is subject to the extra 4% tax, just your income above the threshold is is subject to the extra tax. So, if your taxable income were $1,001,000, then just the last $1,000 would be subject to the tax, costing you an extra $40.

Further, you should be aware that the tax is indexed for inflation, so the threshold in 2025 is $1,083,150.

You can read more about the tax on the Massachusetts Department of Revenue website here: https://www.mass.gov/info-details/4-surtax-on-taxable-income-over-1000000

Related Articles

What Legal Documents Should Older Adults Have In Place? The Tax Benefits of Making Charitable Gifts While Alive What’s a QTIP Trust and Why Would You Want One? Here are 7 Reasons