IRS Wants All Rents Subject to new 3.8% Medicare Tax
As we posted yesterday, the IRS issued proposed Regulations on Friday November 30, 2012 on how to implement the new Medicare 3.8% surtax that takes effect on January 1, 2013. In brief, if your income is greater than $250,000 ($200k single), then all of your investment income, including cash and crop share rents, may become subject to this new tax. Your income from farming as a sole proprietor is already subject to the regular 3.8% Medicare tax.
We originally thought the IRS would allow a grouping election of combining your rental entities with your farm operating entities would eliminate the rental income from the new Medicare tax. Based on the Regulations just issued, the IRS views almost all rents as being subject to the tax even if you made a grouping election.
Since these are proposed Regulations, they are subject to public comment but the IRS has a history of not making too many major changes.
If you think this new tax may apply to you, now is the time to meet with your tax advisor.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Could you possibly give some examples on this new Medicare surtax might be calculated?
Thank you.