Final Net Investment Income Tax Regulations: impact on real estate investments

March 2014
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Final Net Investment Income Tax Regulations: impact on real estate investments

At a glance

This alert explores how some of the changes that were enacted as part of the Health Care and Education Reconciliation Act of 2010, the Medicare Contribution Tax ("MCT," also referred to as the Net Investment Income or NII tax) affect real estate investments as well as additional considerations relevant to our industry.

Enacted as part of the Health Care and Education Reconciliation Act of 2010, the Medicare Contribution Tax (‘MCT,’ also referred to as the Net Investment Income or NII tax) imposes a 3.8% tax on the unearned income of US individuals, estates, and trusts starting in 2013.

On December 2, 2013, the Treasury issued final regulations adopting the old proposed regulations with significant changes. The Treasury also issued new proposed regulations that focused on the NII tax exposure upon the dispositions of passthrough interests, among other topics. These new regulations provide more clarification and guidance and, for most part, are easier to implement.

For a more detailed discussion on NII and its application to US investors with domestic or foreign real estate investments, please see the following article: Impact of New Medicare Contribution Tax on Real Estate Investments.