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Insights
Filtered by tag: Material Participation — View all
Trusts Can "Materially Participate" in Businesses
Estate planning attorneys and financial planners now have much-needed guidance about "material participation" and "personal services" as they relate to trusts. The Tax Court recently ruled that a trust materially participated in its rental real estate business and therefore could deduct the losses it incurred in conducting those activities as losses from non-passive activities. The court rejected the IRS's argument that "personal services" performed in real estate activities must be performed by an individual, not a trust. This ruling is especially important considering the introduction of the "Medicare Tax" which imposes a 3.8% surtax on net investment income (the definition of net investment income includes income derived from a trade or business that is a passive activity to the investor).
