What Is The Net Investment Income Tax? Trump Could Save Millions If It's Repealed

The public may still have only a limited grasp of what President Donald Trump paid in taxes, but if the House Republican health care act wins approval, he’ll likely pay a lot less.

The American Health Care Act—also known as the AHCA, “Ryancare” or “Trumpcare”—eliminates a 2013 tax from former President Barack Obama’s Affordable Care Act on individuals who made more than $200,000 and couples who earned over $250,000.

The Net Investment Income Tax, which was named in the AHCA among “the largest costs” of the new plan, takes 3.8 percent of those high earners’ gains from selling stocks, mutual funds and bonds, as well as interests in business partnerships and, most importantly for the real-estate-magnate-turned-president, rental income.

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The tax wouldn’t have applied to Trump if he hadn’t become president and placed his company into a trust managed by his two sons. That’s because the measure only applies to “passive” investment activity without “material participation,” which the Internal Revenue Service defines as involving at least 500 hours of work—12.5 weeks full-time—or work serving the investment or company in question almost completely done by the individual relative to other employees, among other factors. Its tax on rental income gains didn’t apply to “real estate professionals” who had “materially participated” in the industry.

“In terms of his rental income, he would have been largely unaffected by repeal [of the tax as a private citizen],” Tony Nitti, an accountant at the New York-based accounting firm WithumSmith+Brown, told the Wall Street Journal Friday. “There’s no just practical way he can qualify as a real estate professional now that he’s president of the United States.”

Still, there's a chance the tax may not have applied to him just yet, as the IRS also defines material participation as having put hundreds of hours into the rental or investment business “in any 5 of the previous 10 years” or “in any three prior years.”

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Trump has repeatedly refused to release his tax returns, so there was no way to know his total income. However, an analysis by the Journal found he made $83.6 million in rental income in 2016. More than $3 million of that would go to Uncle Sam under the net investment income tax. According to the draft of the Obamacare replacement plan, the loss of such contributions would certainly add up, coming to a 157.6 percent drop in revenue between 2017 and 2026.