Is rental property subject to 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 …

What property is not subject to net investment income tax?

The NIIT doesn’t apply to certain types of income that taxpayers can exclude for regular income tax purposes such as tax-exempt state or municipal bond interest, Veterans Administration benefits, or gain from the sale of a principal residence on that portion that’s excluded for income tax purposes.

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Is rental property considered investment income?

The term “investment income” generally refers to financial investments, such as capital gains from the sale of stocks and bonds, interest payments and dividends, to name just a few. Rental income, however, is in a category all by itself.

What income is subject to 3.8 net investment tax?

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.

Is passive rental income subject to NIIT?

Rental income is presumed to be derived from a passive activity and thus subject to NIIT. An exception exists, however, for rental income earned in the ordinary course of a real estate trade or business in which the taxpayer actively participates.

Are active rentals subject to NIIT?

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.

What is not subject to NIIT?

The IRS stipulates that there are a few types of trusts not subject to the NIIT, including: Trusts that are exempt from income taxes. … Perpetual care trusts. Electing Alaska Native Settlement Trusts.

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.

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Is the sale of a second home subject to net investment tax?

Gains from sales of second homes are subject to the tax. And, of course, the taxpayer must have MAGI exceeding the applicable threshold for the net investment income tax to apply.