Net Investment Income Tax: Application to alternative investments

January 2014
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Net Investment Income Tax: Application to alternative investments

At a glance

The Patient Protection and Affordable Care Act of 2010 imposed on individuals, estates, and trusts a new Medicare tax equal to 3.8% on Net Investment Income (“NII”) starting in the 2013 tax year. On November 27, 2013, Treasury issued much anticipated final regulations, effective for tax years beginning after December 31, 2012. In addition to the issuance of the final regulations, the IRS issued 2013 proposed regulations to provide guidance on issues not addressed in the 2012 proposed regulations.

The Patient Protection and Affordable Care Act of 2010 imposed on individuals, estates, and trusts a new Medicare tax equal to 3.8% on Net Investment Income (“NII”) starting in the 2013 tax year. On November 27, 2013, Treasury issued much anticipated final regulations, effective for tax years beginning after December 31, 2012. In addition to the issuance of the final regulations, the IRS issued 2013 proposed regulations to provide guidance on issues not addressed in the 2012 proposed regulations.

This alert will address:

  • Highlights from the final regulations and 2013 proposed regulations
  • Planning considerations for funds and management companies
  • Reporting considerations, including disclosures to investors on the Schedule K-1
  • Action items for the 2013 tax year

For a more detailed discussion on NII and its application to the alternative investments industry, please see the following articles: