Category: Individuals
Subject: Self-Employment Tax
Title: Recharacterization of Rental Income Under Section 469, Effect on SE Tax
IRC Sections: 1402(a)(1), 469
Filename: 1135b.html
Date Produced: 1/96

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Regulation Section 1.469-2(f)(6) converts rental income into non-passive income if the property producing the rental income is rented to an activity in which the taxpayer materially participates. Does the conversion also make such rental income subject to self employment (SE) tax?

There is no indication that the recharacterization rules affect the SE taxability of the rental income. Section 1402(a)(1) still provides that various kinds of income, including rental income, are exempt from self employment tax. That statute is effective irrespective of Regulation Section 1.469-2(f)(6) and continues to control the SE taxability of rental income.