Owners of Real Estate & The 3.8% NIIT

OR

I want to present to you a part of the preamble to the proposed regulation relating to real estate professionals in order to show why this subject area is a mine field. The below reference to Section 1411 is a reference to that part of the Act that creates the additional taxes for Medicare.

(2) Real Estate Professionals Section 469(c)(7) and Sec. 1.469-9 provide special rules for certain individual taxpayers involved in the conduct of real property trades or businesses (real estate professionals). If a taxpayer meets the requirements to be a real estate professional in section

469(c)(7)(B), the taxpayer's interests in rental real estate are no longer subject to section 469(c)(2), and the rental real estate activities of the taxpayer will not be passive activities if the taxpayer materially participates in each of those activities. However, a taxpayer who qualifies as a real estate professional is not necessarily engaged in a trade or business (within the meaning of section 162) with respect to the rental real estate activities. If the rental real estate activities are section 162 trades or businesses, the rules in section 469(c)(7) and Sec. 1.469-9 will apply in determining whether a rental real estate activity of a real estate professional is a passive activity for purposes of section 1411(c)(2)(A). However, if the rental real estate activities of the real estate professional are not section 162 trades or businesses, the gross income from rents derived from such activity will not be excluded under section 1411(c)(1)(A)(i) by the ordinary course of a trade or business exception. The ordinary course of a trade or business exception is inapplicable because the rents are not derived from a trade or business and will therefore be subject to section 1411. The ordinary course of a trade or business exception is described in part 5.A.vi of this preamble.

> OR

yes. I know a couple folks who should qualify. They will start keeping contemporaneous time records starting January 1, and plan to file a declaration regarding aggregating their rentals with their 2013 tax return. Of course, they will be watching for further developments until that time. One has to wonder how many such items will get whisked away before long.