Net Investment Tax

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  • Florida_EA
    Senior Member
    • Aug 2017
    • 153

    #1

    Net Investment Tax

    Client owned rental property that he rents. End of year the client sells the rental units for gain. The form 8960 is calculating the net investment tax on the gain. Is there any exception to this type of gain from the net investment tax
  • New York Enrolled Agent
    Senior Member
    • Nov 2006
    • 1532

    #2
    Originally posted by Florida_EA
    Client owned rental property that he rents. End of year the client sells the rental units for gain. The form 8960 is calculating the net investment tax on the gain. Is there any exception to this type of gain from the net investment tax
    The relevant portion of ยง1411 - no exceptions related to your query in sight

    (c) Net investment income

    For purposes of this chapter -

    (1) In general

    The term "net investment income" means the excess (if any) of -

    (A) the sum of -

    (i) gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2),

    (ii) other gross income derived from a trade or business described in paragraph (2), and

    (iii) net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2), over

    (B) the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.

    (2) Trades and businesses to which tax applies

    A trade or business is described in this paragraph if such trade or business is -

    (A) a passive activity (within the meaning of section 469) with respect to the taxpayer, or

    (B) a trade or business of trading in financial instruments or commodities (as defined in section 475(e)(2)).

    Comment

    • Florida_EA
      Senior Member
      • Aug 2017
      • 153

      #3
      What is the rental activity is considered active rather than passive?

      Comment

      • Rapid Robert
        Senior Member
        • Oct 2015
        • 1986

        #4
        Originally posted by Florida_EA
        What is the rental activity is considered active rather than passive?
        Those two are not mutually exclusive -- quite often, a passive rental activity includes active participation. Active participation does not matter for purposes of NII.

        edit: to clarify, in the tax world the opposite of "passive" is "non-passive", not "active".

        To avoid NII on gains from sale of property, the following criteria must be met:

        1. The gains were derived from property held in a trade or business;
        2. The trade or business was not the trading of financial instruments or
        commodities; and
        3. The business was not passive to the individual.
        Last edited by Rapid Robert; 10-02-2020, 12:12 PM.
        "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
        "That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe Howard

        Comment

        • New York Enrolled Agent
          Senior Member
          • Nov 2006
          • 1532

          #5
          Originally posted by Florida_EA
          What is the rental activity is considered active rather than passive?
          IRC 469

          (2)Passive activity includes any rental activity

          Except as provided in paragraph (7), the term “
          passive activity” includes any rental activity.

          Paragraph 7 refers to a real estate professional.

          Comment

          • terryats
            Senior Member
            • Jan 2019
            • 258

            #6
            Very easy to understand from IRS: https://www.irs.gov/newsroom/questio...ent-income-tax

            Comment

            • TAXNJ
              Senior Member
              • Jan 2007
              • 2106

              #7
              Originally posted by terryats
              Good Q & A
              Always cite your source for support to defend your opinion

              Comment

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