United States

Structuring partnerships to minimize taxation on interest dispositions


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When Congress passed the Affordable Care Act, it adopted a new tax on the “net investment income” of certain high-income taxpayers. At first, some observers thought the new tax was a simple extension—to all income—of the existing Medicare tax on self-employment income. In fact, some income may be exempt from both taxes.

But what is the impact on real estate investors and real estate professionals?  Can a partner working in real estate avoid both the self-employment tax and the net investment income tax?

Careful structuring of the ownership and operation of a real estate partnership may allow a partner to minimize or avoid both self-employment tax and net investment income tax, both on income from normal operations and on gains from the sale of a business or its assets. This includes partners receiving real estate rents as well as partners receiving non-rental income from real estate activities.


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