Marianne Couch for Thomson Reuters writes: The Net Investment Income Tax (NIIT), the new 3.8% tax on certain net
investment income of individuals, estates and trusts that have income
above threshold amounts, is now in effect. The IRS has posted a list of FAQs, which can help answer some client questions about the NIIT, at http://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-FAQs.
Tax counsel advice should be sought as to how the rules will impact
2013 tax liabilities of both the trust or estate and the beneficiaries.
The Net Investment Income Tax took effect on January 1, 2013,
applicable to individuals, estates and trusts for their first tax year
beginning on or after Jan. 1, 2013. It does not affect income tax
returns for the 2012 taxable year. Trusts and estates are impacted
because the NIIT applies on the lesser of undistributed net investment
income for the tax year, or the excess of the entity’s adjusted gross
income over the dollar amount at which the highest tax bracket for
estates and trusts begins for the tax year.
There are exemptions, such as for tax-exempt interest and tax-exempt
dividends from a mutual fund; for distributions from most qualified
retirement plans including IRAs (but distributions enter into the AGI
calculation); an exception for trusts where all of the unexpired
interests are devoted to one or more of the charitable purposes
described in IRC § 170(c)(2)(B); and special computational rules for
charitable remainder trusts and electing small business trusts
(regulations have been proposed and may be relied upon until final
regulations are issued). For grantor trusts, the individual grantor’s
tax return will be impacted.
Thursday, April 4, 2013
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