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Form 8960 using the items from the non-S

participate. There are limited exceptions

during the 10 tax years immediately prior

portion, and add undistributed net

for rentals. See the discussion on rentals,

to this tax year.

investment income of the S portion to net

later. For more details on passive

If you qualify, your gross rental income

investment income on line 7.

activities, see Instructions for Form 8582,

from your rental real estate activity is

Passive Activity Loss Limitations, and

treated as though derived in the ordinary

2. The ESBT determines its AGI,

Pub. 925, Passive Activity and At-Risk

course of a trade or business and isn’t

solely for purposes of NIIT, by adding the

Rules.

included in your net investment income. If

net income or net loss from the S portion

you qualify in the year you dispose of the

to the AGI of the non-S portion as a single

Trade or Business Activities

property used in the rental real estate

item of income or loss. See instructions for

The definition of trade or business for NIIT

activity, the amount of gain or loss from

line 19a for more information.

purposes is limited to a trade or business

the disposition is also deemed to be

3. To determine whether the ESBT is

within the meaning of section 162. This is

derived from property used in the ordinary

subject to NIIT, the ESBT compares the

more restrictive than the definition of a

course of a trade or business and isn’t

combined undistributed net investment

trade or business activity for purposes of

included in your net investment income.

income with the excess of its AGI over the

the passive activity loss rules. For

section 1(e) threshold.

Note. For real estate professionals with a

example, under the passive activity loss

Regulations section 1.469-9(g) election in

rules, a trade or business includes any

For an ESBT with only S

effect, all of your rental real estate

activity conducted in anticipation of the

corporation income (no non-S

TIP

commencement of a trade or business

activities constitute a single activity for

portion), complete Form 8960

and any activity involving research or

purposes of applying the 500-hour test

using the items from the S portion. For

described in

Safe Harbor for Real Estate

experimentation. In some cases, income

ESBTs with an S portion and a non-S

Professionals, earlier.

from activities that aren’t passive activities

portion, use Form 8960 as a worksheet for

under section 469 will be included in net

calculating the amounts to enter on line 7

Note. If you‘re a real estate professional

investment income because the activity

and line 19a. On the S portion's Form

under section 469(c)(7), but you’re unable

doesn’t rise to the level of a trade or

8960 worksheet, enter the S portion's net

to satisfy the qualifications for the safe

business within the meaning of section

investment income on line 7 of the trust's

harbor, you’re not precluded from

162. The activity must be a trade or

Form 8960 and combine line 19a of the

establishing that the gross income and

business within the meaning of section

Form 8960 worksheet with the non-S

gain or loss from the disposition of

162 and be nonpassive for purposes of

portion's AGI to arrive at the amount on

property associated with your rental real

section 469 before the income is excluded

line 19a.

estate activity isn’t included in net

from the NIIT. If you own an interest in a

investment income.

See Regulations section 1.1411-3(c)

pass-through entity, the determination of

for more details and examples.

whether that’s a trade or business is made

Special Rules for Certain Rental

at that entity's level.

Special computational rules for bank-

Income

Real Estate Professionals

ruptcy estates of an individual. A

For income tax purposes, Regulations

bankruptcy estate of an individual debtor

If you’re a real estate professional for

section 1.469-2(f)(6) generally

is treated as an individual for purposes of

purposes of section 469(c)(7), your rental

recharacterizes what otherwise would be

the NIIT. Regardless of the actual marital

income or loss won’t be passive if you

passive rental income from a taxpayer's

status of the debtor, the applicable

materially participated in the rental real

property as nonpassive where the

threshold for purposes of determining the

estate activity. For additional information

taxpayer rents the property for use in a

NIIT is the amount applicable for a married

on real estate professionals, see section

trade or business in which the taxpayer

person filing separately.

469(c)(7) and Pub. 925.

materially participates. Similarly, for

Distributions from foreign estates and

income tax purposes, a rental activity

However, your rental income is

foreign trusts. If you’re a U.S. person

that’s properly grouped with a trade or

included in net investment income if the

who receives a distribution of income from

business activity in which the taxpayer

income isn’t derived in the ordinary course

a foreign estate or foreign trust, generally,

materially participates under Regulations

of a trade or business. Qualifying as a real

you must include the distribution in your

section 1.469-4(d)(1) is a nonpassive

estate professional doesn’t necessarily

net investment income calculation to the

activity. For purposes of calculating your

mean you’re engaged in a trade or

extent that the income is included in your

net investment income, the gross rental

business with respect to the rental real

AGI for regular income tax purposes.

income in both of these situations is

estate activities. If your rental real estate

However, you don’t need to include any

treated as though it’s derived in the

activity isn’t a section 162 trade or

distributions of accumulated income that

ordinary course of a trade or business.

business or you don’t materially

you receive from a foreign trust.

Further, upon the disposition of the assets

participate in the rental real estate

associated with the rental activity, any

activities, the rental income will be

Note. The NIIT doesn’t apply directly to

gain or loss is also treated as gain or loss

included in NIIT.

foreign estates or foreign trusts.

attributable to the disposition of property

Safe Harbor for Real Estate

held in a nonpassive trade or business

Passive Activity

and not included in your net investment

Professionals

income.

General Rules

You qualify for the safe harbor if you’re a

Treatment of Former Passive

real estate professional for purposes of

Net investment income generally includes

section 469 and you:

Activities

income and gain from passive activities. A

Participate in each rental real estate

passive activity for purposes of net

A former passive activity is any activity

activity for more than 500 hours during the

investment income has the same meaning

that was a passive activity in a prior tax

tax year, or

as under section 469. A passive activity

year but it isn’t a passive activity in the

Participated in a rental real estate

includes any trade or business in which

current year. A prior tax year's unallowed

activity for more than 500 hours in any 5

you don’t materially participate. A passive

loss from a former passive activity is

tax years (whether or not consecutive)

activity also includes any rental activity,

allowed to the extent of current year

regardless of whether you materially

Instructions for Form 8960 (2017)

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Instructions For Form 8960 - Net Investment Income Tax - Individuals, Estates, And Trusts - 2017 Page 3

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