We have had several posts in the past about how the proposed net investment income tax Regulations indicated that cash or crop-share rents paid by a farmer's operation to him or a pass-through entity would be subject to the 3.8% net investment income tax.
In Final Regulations issued earlier this week, the IRS changed their interpretation of this rule and have now indicated that any self-rented real estate or rental real estate that has been properly grouped with a material participation entity will not be subject to the tax. In even better news, any gain from selling this type of property will also be exempt from the tax.
Therefore, if a farmer has created a LLC to own farm land which rents the land to his schedule F operation, this will not be subject to the 3.8% net investment income tax.
However, if you are an active investor in farmland property and do not have any farm operation or never had a farm operation, in these cases, it is likely that your rental income will be subject to the new 3.8% tax. This would include any gain from selling the land.
On a personal note, this is how I spent part of my Thanksgiving day in Los Cabos. My wife and I took an hour ride up north of the airport into the hills to go Zip Lining. We had a great time, but I have a feeling my wife and I will be in bed early tonight.