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Rental Property CPA discusses the 2013 3.8% Investment tax on Rental Profit from Form 8825 and Schedule E | another passive activity rental property issue

Form 8825 CPA rental property Schedule E net investment tax

The 2013 3.8% Net Investment Tax doesn’t affect many rental property owners. (910) 399-2705.

Rental Property CPAs starting fielding questions about the 3.8% Investment tax last year. Why?

  • The Net Investment Income definition includes rent.
  • The tax is new for 2013 and public misconceptions exist.
  • The calculations are what you’d expect; murky.

Net Investment Tax Basics

  • Many Form 8825 and Schedule E rental property Clients won’t be affected.
  • Many rental property Clients can still deduct up to $25,000 of rental property loss under the passive activity exclusion.
  • The tax takes effect only when you reach a modified adjusted gross income (MAGI) of $200,000 for a single person.
  • Rental property owners who meet the real estate professional guideline are not directly affected.
  • The 3.8% Investment Tax may not apply to all of your rental property profit.

“Most rental property owners won’t be affected by the new 3.8% tax. But it may add another layer of complexity for proactive tax positioning.”
– Gary Bode, rental property CPA and Form 8825 tax accountant.

Example

  • Mark is single and earns $175,000 in wages during 2013.
  • He has rental property profit reported on Schedule E of $30,000.
  • This makes his MAGI $205,000 for 2013; $175,000 + $30,000.
  • He pays the 3.8% tax on the smaller of his:
    • Net investment income (the $30,000 of rental property income).
    • MAGI less the threshold for single taxpayers; $205,000 less $200,000 threshold = $5,000.
  • The additional tax is 3.8% x $5,000 = $190.

Rental Property Planning

  • Ask your rental property CPA to extrapolate your 2013 net investment tax based on your 2012 tax figures and known changes for 2013.
  • The net investment tax also affects the sale of rental property.

I’m a rental property CPA because I have rental property in my extended family. So I have to stay current on rental property and passive activity issues. My virtual office allows me serve you wherever your rental property is located. (910) 399-2705.

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