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Taxes Increase on Real Estate Income
By Douglas Kelin, Lipson Neilson Cole Seltzer & Garin, PC
The Health Care Education Reconciliation Act of 2010 includes a new tax on certain real estate income, often misleadingly characterized as a 3.8% tax on “unearned” income for certain “high income” individuals. A 3.8% tax will be charged on the lesser of (i) annual net investment income, or (ii) the excess of modified gross income over the “threshold amount.” Net investment income includes gross income from interest, dividends, annuities, royalties and rents, passive income, and net gain attributable to property sales other than trade or business property.
The “threshold amount” limits this tax to (i) individual taxpayers earning $200,000 in tax year, or (ii) married taxpayers filing jointly earning $250,000 in the tax year. Rent from investment property may be taxable if the amount of gross rental income exceeds the deduction for allowable expenses (such as depreciation and taxes) in a given year. Gains from the sale of a principal residence less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded, but any amounts received above this exclusion are taxable if the seller’s adjusted gross income meets the $200,000/$250,000 threshold.
The tax is not aimed at high net worth individuals, but only those earning the “threshold amount” in a given tax year. Some have criticized this new tax because a low net worth individual could become subject to the tax merely for selling a long held piece of real estate in an isolated year where earnings surpass the threshold. Attorneys should advise their clients to structure withdrawals from retirement accounts and to carefully time other income-generating events to avoid capital gains from property sales in years with significant income.
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July 14–17, 2010
The End of Trespass-Nuisance in Michigan?By Jason C. Long, Steinhardt Pesick & Cohen, P.C.
In Blue Harvest, Inc. v. Dep’t of Transp. (Mich. App. April 29, 2010 (No. 281595)), the Court of Appeals ended trespass-nuisance claims in Michigan. “Trespass-nuisance” is interference with the use or enjoyment of land resulting from a physical intrusion that the government set in motion. Because such claims are specifically against the government, immunity is an issue.
Historically, the Supreme Court had allowed a non-statutory exception to immunity for trespass-nuisance claims, but only applied it to municipal corporations. In Pohutski v. City of Allen Park, the Supreme Court in 2002 overruled that exception. But Pohutski declined to address the State’s immunity.
Blue Harvest addressed that issue. There, several blueberry farmers claimed trespass-nuisance against the Department of Transportation (DOT). They alleged that salt that the DOT spread on roads was carried onto their properties through water spray, damaging blueberry bushes and reducing production.
Holding the State immune, Blue Harvest relied on the Supreme Court’s 1984 decision in Ross v. Consumers Power Co. Ross held that exceptions to immunity “must be granted by the Legislature.” Because the Government Tort Liability Act (GTLA) provides no trespass-nuisance exception, Blue Harvest concluded that the State is immune. The court stated that immunity is consistent with the GTLA’s intent to “to create uniform standards of liability” between municipalities and the State.
After Blue Harvest, parties that suffer government interference with their properties must rely on claims other than trespass-nuisance to seek compensation. One possible claim could be inverse condemnation, which is not subject to immunity. But that claim provides a small window of liability. For example, the farmers in Blue Harvest asserted an inverse condemnation claim, but the court held that the salt spray’s effects were not unique to their land, so the claim was invalid. Blue Harvest leaves little room for relief for damages from government activity without an applicable GTLA exception.