The Virginia Green Industry Council recommends planting spring bulbs as late as December, as long as the ground hasn’t frozen. This winter the coastal area of Virginia has enjoyed mild temperatures with only a few bouts of freezing days and nights. If your News Year’s resolution to stop procrastinating is still in force, maybe you should get out there now and plant those bulbs you bought in September. If you look closely, you may even find some tender green shoots starting to pop out already thanks to unseasonably warm days.

Green shoots may remind you of another springtime. Think back to the spring of 2009. Ben Bernanke, the Federal Reserve chairman, used this expression to describe the improving economic landscape as credit markets started to thaw, companies were able to raise funds in the capital markets and durable sales were improving following a 17 month bear market. The S&P 500 surged 72.3% and 65.3% in the 1 and 2 years respectively since the market’s bottom on March 9, 2009.

But before we get too jubilant, let’s flash forward to our investment garden this time next year. There will be a new green shoot in the economic landscape, but this time a weed - the 3.8% Medicare Tax that kicks in January 2013. More formally, this Medicare tax is known as the Patient Protection and Affordable Care Act that was signed into law by President Obama in the spring of 2010. Like most taxes, it’s not straightforward and has its required share of 'lesser than' and 'in excess of' language to be sure there is sufficient complexity to quality as a thorn in one’s side.

At its core, it is a wealth tax to be imposed on unearned income that is derived from:

• Interest (not tax exempt)
• Dividends
• Rents (less expenses)
• Capital Gains (less losses)
• Annuities
• Royalties

Who is affected?
Individuals with an AGI of $200,000+ and Couples filing Jointing with AGI of $250,000+

Triggers that could cause the tax to kick in when adding to the AGI limits above:

• Sale of a principal residence with a gain of over $250,000 (Individual) or $500,000 (Joint) applicable to amounts over the excluded gain.
• Sale of a second home with no more than 14 days rental
• Sale of inherited investment property (basis carried over from 2010 where carryover basis was in effect)
• Sale of financial securities

Qualified retirement plan and IRA distributions are not considered investment income and are excluded.

What to do?
From an investment perspective, you may want to consider having gains settle in 2012 before the new tax takes place. As always with tax or legal questions, we suggest you consult your tax or legal advisor for clarification of how you may be impacted by this tax. And get those old bulbs out of the garage and in the ground so your springtime garden will reward you with glorious color!