By Lewis Saret, Contributor The new 3.8% Medicare Surtax outlined in Code Sec. 1411 has significant implications for taxpayers. We will continue our discussion of the effects of the 3.8% Medicare Surtax by exploring the important relationship between Net Investment Income and Adjusted or Modified Adjusted Gross Income, and how a reallocation of income may be an advantageous step for taxpayers to lessen the effects of this new investment income tax. …read more
Source: FULL ARTICLE at Forbes Latest
Tag Archives: MAGI
How Real Estate Investors Can Protect Themselves From The IRS
Thanks to the new ObamaCare Medicare surtax, real estate investors now have an additional reason to try to qualify as “real estate professionals”. The 3.8% surtax, which kicked in January 1, applies to “investment” income—including rental income and capital gains– to the extent a couple has modified adjusted income above $250,000 or a single person has MAGI above $200,000. But as CPA Peter J. Reilly explains here and CPA Tony Nitti explains here, there is an exception for those who can qualify as real estate professionals—they don’t have to pay the extra 3.8% on rental income or gains from their property. The catch? Qualifying is a lot harder than you might think and it’s an area that has already been getting scrutiny from Internal Revenue Service auditors for a different reason: the ability it gives taxpayers to claim losses. In the following guest post, California tax attorney Philip Panitz discusses what he sees as an IRS audit “war” against real estate investors and offers advice on how taxpayers can protect themselves from becoming casualties. For additional insight into the IRS’ positions, read its Audit Technique Guide here. …read more
Source: FULL ARTICLE at Forbes Latest
New Taxes and New Terms: How to calculate Net Investment Income under the New 3.8% Medicare Surtax
By Lewis Saret, Contributor As introduced in last week’s blog post, What the New 3.8% Medicare Surtax Mean for You and Your Investments, Code Sec. 1411 applies a new 3.8% tax on a taxpayer’s net investment income, i.e. the 3.8% Medicare Surtax. There are a number of new terms introduced by Code Sec. 1411 that may require further explanation. A comprehensive understanding of these terms will help taxpayers adjust their taxes this year to account for the 3.8% Medicare Surtax. Therefore, in these next two installments, we will explore the following four main categories of terms found in Code Sec. 1411: Net Investment Income (‘NII’) and related terms Undistributed Net Investment Income (‘UNII’) and related terms Adjusted Gross Income (‘AGI’) Modified Adjusted Gross Income (‘MAGI’) Perhaps the most important of these terms is Net Investment Income. NII, which consists of three parts reducible by certain deduction, plays a critical role in determining the effects of the 3.8% Medicare Surtax. Since under Code Sec. 1411, a 3.8% tax is applied on the lessor of a taxpayer’s NII or MAGI above a predetermined threshold, it is important that taxpayers are able to determine the appropriate amount reported as NII for a taxable year. Basically, these three parts include: Gross income from interest, dividends, annuities, royalties and rent, to the extent that it is not derived in the ordinary course of trade or business Gross income from trades or businesses trading in financial instruments or commodities or that are considered passive activities to the taxpayer are included under Code Sec. 1411, and Net gain from disposing a property NII can be reduced by certain deductions, which Code Sec. 1411 and the proposed regulations thereunder collectively refer to as ‘Properly Allocable Deductions’. …read more
Source: FULL ARTICLE at Forbes Latest