Self-Rental: Net Investment Income?

[Snaggletooth]

This is going to be yet another ACA question.

For purposes of the new 3.8% medicare (not really even medicare) tax: Does income from a self-rental constitute Net Investment Income?

In recent years, the rules now require us to categorize all rental income into buckets, and the self-rental bucket means passive rules are distorted. I don't see how this can be NII, but some believe it is.

Fresh back from a seminar in Columbia SC and this question was asked at least twice. The instructors were inconsistent with their answers and no one seemed to know for certain.

Another obvious question, if it is indeed NII income, then can you net out a loss? Remember the IRS has hockeyed up self-rentals with respect to losses.

[JON]

Final Regs

excluded "self rental income" from the 3.8%. It was a change from proposed regs..

[DaveinTexas]

Tony Nitti

This contributor to Forbes seems to have a decent handle on these new regulations regarding the NII tax as it applies to multiple situations.

Here is his article that discusses the NII tax and the Self Rental Rule: http://www.forbes.com/sites/anthonyn...regulations/6/

Tony seems to interpret the newest regs (about a week old at this point) clear up the rules regarding the NII tax. Old regulations stated that the "rental activity" itself must rise to a level of a trade or business. These newest regs have eliminated that rule.

So, in order to escape the NII tax, the self rental income must be non-passive by definition under Reg. 1.469(2)(f)(6) OR the taxpayer must group these activities together (by attaching a statement). This is a big relief. But.....just when you thought this NII tax was simple to understand (joke implied), check out the entire article and review Tony's segment regarding selling stock/shares in an S Corp or Partnership and how the NII tax may affect the gain.

This new law, alone, is why I am raising my prices across the board this year; I think it will be easily justified.

[Kram BergGold]

Final answer?

Self rental income is deemed non passive. Therefore, I interpret this to mean that self rental is excluded from NII, correct?

[buzzardbreath]

Non-Passive?

Thanks to all who have participated. I believe income is "non-passive" to the extent that the income cannot be classified as passive to the extent it can be netted against passive losses, right? Not only that but by nature, it is not passive if an integral part of operations. But it is treated as "passive" for loss purposes.

[DaveinTexas]

Final Regs until....

Thanks to all who have participated. I believe income is "non-passive" to the extent that the income cannot be classified as passive to the extent it can be netted against passive losses, right? Not only that but by nature, it is not passive if an integral part of operations. But it is treated as "passive" for loss purposes.

That is correct. Self rental is passive according to the Regs but if there is ever any doubt, one way to solidify the Non-Passive nature of the "rental business" is to group the activities together. Either way, the Self Rental Income/Gain will not be subject to the NII Tax. That's only fair because, as Buzzardbreath states, this non-passive income will not offset passive income. And finally, if the self rental activity results in a loss, the loss will be considered passive. So the IRS can't have it's cake and eat it too....this time....or until they realize they have thrown us a bone and change the Regs yet again.