Sale of a personal residence is not business income. It is investment income (the $250/500K exclusion notwithstanding). Only investment income is subject to this tax. I didn’t really word my previous comment very well. The way it’s written is actually wrong. The tax would not apply to the $400,000 in salary. It would apply to the interest income.
Example for a married couple filing a joint return. Wages of $275,000. Interest of $5,000. Taxable gain on the sale of a personal residence of $100,000. (Which would mean it was actually a $600,000 gain.) Total income is $380,000. New tax applies on all investment income of $105,000.
Second example. Same facts except total wages are only $100,000. Total income $205,000. Tax does not apply because it’s under the $250,000 threshold.
Third example. Same facts except total wages are $200,000. Total income of $305,000. Tax applies on the lesser of investment income of $105,000 or total income less the threshold amount. ($305,000 less $250,000 or $55,000) Tax would only apply on the $55,000.
