With respect to the application of the Medicare Surtax 3.8%, according to the IRS, "Net investment income
" includes the following items, reduced by any deductions allocable to such income as shown below;
- Interest, dividends, royalties, annuities, and rents.
- Income derived from passive activities.
- Trading financial instruments and commodities.
- Net capital gains derived from the disposition of property (other than property held in an active trade or business).
But, according to the IRS, “Net investment income
” does not include the following:
- Active trade or business income.
- Gain on sale of an active interest in a partnership or S corporation.
- Distributions from IRAs or qualified retirement plans.
- Income from tax exempt municipal bonds.
- Tax deferred non-qualified annuities.
- Income taken into account for self-employment tax purposes.
- Capital gain excluded under I.R.C. §121.