Does Net investment income tax apply to real estate professionals?

What income does net investment tax apply to?

The net investment income tax (NIIT) is a 3.8% tax on investment income such as capital gains, dividends, and rental property income. This tax only applies to high-income taxpayers, such as single filers who make more than $200,000 and married couples who make more than $250,000, as well as certain estates and trusts.

What is exempt from net investment income tax?

Wages, self-employment income, unemployment compensation, business income from nonpassive sources, Social Security benefits, tax-exempt interest, and qualified pension, annuity, and individual retirement account distributions are excluded when calculating the net investment income tax.

Is rental income included in net investment income?

In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.

What property is subject to net investment income tax?

Estates and trusts are subject to the Net Investment Income Tax if they have undistributed Net Investment Income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year under section 1(e) (for tax year 2013, this threshold amount is …

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How do you avoid net investment tax?

It’s net investment income and not gross investment income. If we can increase investment expenses to lower our net income, that is another way to avoid the Net Investment Income Tax. Examples of expenses are rental property expenses, investment trade fees, and state and local taxes.

Are Roth conversions subject to net investment income tax?

Although the amount converted to a Roth doesn’t count as net investment income, it could still raise your MAGI, thereby triggering additional tax in the year of a conversion. Of course, there are several financial and personal factors to consider before you convert. It’s NOT for everyone.

Is section 1250 gain subject to net investment tax?

The gain attributable to the depreciation may be subject to the 25% unrecaptured Section 1250 gain tax rate. Additionally, taxable gain on the sale may be subject to a 3.8% Net Investment Income Tax.

Is rental real estate subject to net investment income tax?

The gain from the sale of rental property is also subject to NIIT unless the rental activity is part of an active trade or business. If the real estate activity is considered a passive activity, any gain on the sale of property would generate gain that would be subject to the net investment income tax.

Is sale of business property subject to net investment tax?

2) the taxpayer materially participates in the trade or business (i.e., it is not a passive activity to the taxpayer), then any gain arising from the sale of property used in the trade or business will not be included in net investment income.

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