Before we dive into the numbers, it's good to point out that the Internal Revenue Service categorizes
income into three broad types: active (earned)
income,
passive (
unearned)
income, and portfolio
income.
For the purpose of evaluating Medicare tax exposure, it's important to know that «
unearned» net investment
income includes net rental
income, dividends, taxable interest, net capital gains from the sale of investments (including second homes and rental properties), royalties,
passive income from investments in which you do not actively participate (such as a partnership), and the taxable portion of nonqualified annuity payments.
Your Medicare tax exposure may include «
unearned»
income from rental
income, the sale of investments, royalties, and other forms of
passive income.