As we posted yesterday, the IRS issued proposed Regulations on Friday November 30, 2012 on how to implement the new Medicare 3.8% surtax that takes effect on January 1, 2013. In brief, if your income is greater than $250,000 ($200k single), then all of your investment income, including cash and crop share rents, may become subject to this new tax. Your income from farming as a sole proprietor is already subject to the regular 3.8% Medicare tax.
We originally thought the IRS would allow a grouping election of combining your rental entities with your farm operating entities would eliminate the rental income from the new Medicare tax. Based on the Regulations just issued, the IRS views almost all rents as being subject to the tax even if you made a grouping election.
Since these are proposed Regulations, they are subject to public comment but the IRS has a history of not making too many major changes.
If you think this new tax may apply to you, now is the time to meet with your tax advisor.
Paul Neiffer, CPA