Income from REMICs

A real estate mortgage investment conduit (REMIC) is basically an entity formed to hold a number of mortgages secured by property, and to pay out the income to investors.

If you hold a "regular" interest in a REMIC, your investment income is treated as interest, and it will be reported to you on Form 1099-INT and Form 1099-OID. You'll have to report any OID, or market discount that applies, under the rules for bonds. The issuer should send you a notice with enough information to allow you to calculate the amounts to include in income. A "regular" interest is one that unconditionally entitles the holder to a specific principal amount. Any interest payments must be based on a specified interest rate (or formula for a variable rate) or a specified percentage of the interest on the mortgages.

Any interest in a REMIC that is not a "regular" interest is a "residual" one. If you own a residual interest, you should receive a Schedule Q (Form 1066) from the issuer at the end of the year. Information from the Schedule Q is transferred to Part IV of your Schedule E, Supplemental Income and Loss, according to the instructions on Schedule Q. Don't file the Schedule Q itself with your tax return.

Tip

Note that beginning in 2013, a new 3.8 percent net investment income tax may be imposed on individuals whose modified adjusted gross income exceeds $250,000 for joint filers, $125,000 for married taxpayers filing separately, and $200,000 for others. Trusts and estates with income over a certain amount are also subject to the NII tax. Form 8960, Net Investment Income Tax� Individuals, Estates, and Trusts is attached to the tax return. For 2013, the IRS has provided taxpayers the ability to rely on more than one set of net investment income tax rules. The best choice varies by taxpayers and depends on the taxpayer's unique situation. Consult your advisor to determine which approach would be best for you.