Taxpayers main source of income that income will be

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taxpayer’s main source of income, that income will be exempt from the Net Investment Income Tax. Such taxpayers that fall under this category are deemed to be in a trade or business of investing. These taxpayers are generally exempted from the 3.8% Net Investment Income Tax unless their business either is a passive activity with respect to such taxpayer or is a trade or business involved in trading in financial instruments or commodities (www.irs.gov).
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Another type of gain mentioned before that may be potentially included in the Net Investment Income Tax is the gain from the sale of investment real estate. In order to determine if the tax will be applicable under Code Section 1411, the taxpayer will have to consult the rules already in place under Chapter 1 of the Internal Revenue Code. If the property was held during the ordinary course of a trade or business, and that trade or business isn’t a passive activity with respect to the taxpayer or a business of trading in financial products or commodities, then it is also excluded from the Net Investment Income (www.irs.gov). The sum of these three parts is then reduced by properly allocable deductions such as certain types of losses to ascertain a taxpayer’s Net Investment Income for that taxable year. The Net Investment Income Tax will affect individual unmarried taxpayers with an adjusted gross income over $200,000 and couples filing a joint tax return with an AGI higher than $250,000 or $125,000 for individuals who use the married filing separate status (IRC Section 1411). The tax will apply to the lesser of either the investment income or the excess of AGI over the threshold amounts. This tax will not, however, apply to distributions from tax deferred retirement accounts. The Net Investment Income Tax will also have an effect on estates and trusts. The tax, similar to that for individuals, will be dependent upon two components- that estate or trust’s undistributed net investment income and its adjusted gross income. The only aspect of that tax for estates and trusts that differs from the tax on individuals is that for estates and trusts the threshold is adjusted each year based on the dollar amount that starts the highest tax bracket. For the first and current tax year, that amount is $11,650 (www.forbes.com). However, there are certain estates and trusts that are not be subject to the Net Investment Income Tax. These include trusts that are exempt from income taxes imposed by Subtitle A of the Internal Revenue Code (e.g., charitable trusts and qualified retirement plan trusts exempt from tax under IRC section
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501, and Charitable Remainder Trusts exempt from tax under IRC section 664). A trust in which all of the unexpired interests are devoted to one or more of the purposes described in IRC section 170(c)(2)(B). Trusts that are classified as “grantor trusts” under IRC sections 671-679 are also exempt. The last exemption pertains to trusts that are not classified as “trusts” for federal income tax purposes (e.g., Real Estate Investment Trusts and Common Trust Funds). Forbes predicts that
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