Net Investment Tax

[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

[New York Enrolled Agent]

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 §1411 - 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)).

[Florida_EA]

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

[Rapid Robert]

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.

[New York Enrolled Agent]

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.

[terryats]

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

[TAXNJ]

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

Good Q & A