Net investment income leaves out Form 4835 farm rental income (Schedule E line 40) #10075

Problem

net_investment_income sums gov.irs.investment.income.sources over the head and spouse. That is the base of the federal net investment income tax (NIIT) and of Minnesota's NIIT. farm_rent_income is not in the list:

• 1.764.6: taxable_interest_income, dividend_income, rental_income, loss_limited_net_capital_gains, non_sch_d_capital_gains.
• main at 12ea587: taxable_interest_income, dividend_income, rental_income, passive_partnership_s_corp_income (added in 1.816.0 by Add passive partnership/S-corp income input to the NIIT base #9306), estate_net_investment_income, filer_loss_limited_net_capital_gains.

farm_rent_income is net farm rental income or loss from Form 4835. It is in gov.irs.gross_income.sources, and its losses go through loss_ald. So a farm landlord's crop-share rent raises AGI and NIIT MAGI but never counts as net investment income.

Worked example (TY2025, single, Texas): wages $190,000 and Form 4835 line 32 net farm rental income of $30,000.

PolicyEngine on main gives NII 0 and NIIT 0.

Law and forms

Every quote below was extracted this session.

• Statute. 26 U.S.C. 1411 from axiom-corpus row us/statute/26/1411/c/1–c/6. Its source is uscode.house.gov, as of 2026-07-13. The 2024 edition on GovInfo has the same text.

• IRS documents. pdftotext -layout of the 2025 IRS PDFs. The irs-prior/…--2025.pdf copies are byte-identical to the current irs-pdf/ files:

  • i8960 sha256 b10fbb23…
  • f4835 sha256 8ecc6172…
  • f1040se sha256 c5e2c8fa…

  Two-column pages were cropped to one column before extraction.

26 U.S.C. 1411(c), "Net investment income", paragraph (1) "In general":

The term "net investment income" means the excess (if any) of— (A) the sum of— (i) gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2), (ii) other gross income derived from a trade or business described in paragraph (2), and (iii) net gain […] over (B) the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.

§1411(c)(2), "Trades and businesses to which tax applies":

A trade or business is described in this paragraph if such trade or business is— (A) a passive activity (within the meaning of section 469) with respect to the taxpayer, or (B) a trade or business of trading in financial instruments or commodities (as defined in section 475(e)(2)).

§1411(c)(6), "Special rule":

Net investment income shall not include any item taken into account in determining self-employment income for such taxable year on which a tax is imposed by section 1401(b).

2025 Instructions for Form 8960, p. 8, "Line 4a—Income From Trades/Businesses/Farming, Rental Real Estate, Royalties, Partnerships, S Corporations, and Trusts":

Enter the following amount from your properly completed return.
• Schedule 1 (Form 1040), line 3.
• Schedule 1 (Form 1040), line 5.
• Schedule 1 (Form 1040), line 6.

The 2024 instructions (p. 6) list Schedule 1 lines 3 and 5 under the same line.

Same page, the line 4a TIP:

In order to generally capture passive income from trades/businesses/farming that is subject to NIIT, total income from Schedules C, E, and F (Form 1040) is entered on line 4a. Nonpassive income not subject to NIIT is entered as a negative amount on line 4b.

Same page, "Line 4b—Adjustment for Net Income or Loss Derived in the Ordinary Course of a Non-Section 1411 Trade or Business or Otherwise Excepted":

In addition, use line 4b to adjust for certain types of nonpassive rental income or loss derived in the ordinary course of a section 162 trade or business. For example, line 4b includes the following items.
• Nonpassive net rental income or loss of a real estate professional where the rental activity rises to a section 162 trade or business.
• Net rental income or loss that's a nonpassive activity because it was grouped with a trade or business under Regulations section 1.469-4(d)(1). […]
• Net income that's been recharacterized as not from a passive activity under the section 469 passive loss rules and is derived in the ordinary course of a section 162 trade or business, for example: […] 2. Net income from property rented to a nonpassive activity.

Same instructions, p. 4, "Passive Activity", "General Rules":

A passive activity also includes any rental activity, regardless of whether you materially participate. There are limited exceptions for rentals.

Same instructions, p. 5, "Special Rules for Certain Farming Operations":

Farm income from a passive activity is subject to the tax under section 1411(c)(2).

2025 Schedule E (Form 1040), p. 2, Part V "Summary":

40 Net farm rental income or (loss) from Form 4835. […]
41 Total income or (loss). Combine lines 26, 32, 37, 39, and 40. Enter the result here and on Schedule 1 (Form 1040), line 5

The Part I note on p. 1 says: "If you are an individual, report farm rental income or loss from Form 4835 on page 2, line 40."

2025 Form 4835, header (p. 1):

Farm Rental Income and Expenses (Crop and Livestock Shares (Not Cash) Received by Landowner (or Sub-Lessor)) (Income Not Subject to Self-Employment Tax)

Form 4835, General Instructions, "Purpose of Form" (p. 2):

If you were the landowner (or sub-lessor) and did not materially participate (for self-employment tax purposes) in the operation or management of the farm, use Form 4835 to report farm rental income based on crops or livestock produced by the tenant. […] Use this form only if the activity was a rental activity for purposes of the passive activity loss limitations.

Form 4835, line 34 instructions (p. 3). These name the one nonpassive case. Form 8582 is not needed if:

You were a real estate professional (as defined in the Instructions for Schedule E (Form 1040)) and you materially participated in the operation of this activity (under the passive activity loss rules). […] Your loss is not subject to the passive activity loss limitations.

Decisions

1. Farm rent belongs in NII

Form 4835 income takes this path: Schedule E line 40 → line 41 → Schedule 1 line 5 → Form 8960 line 4a. Form 4835 is only for "a rental activity for purposes of the passive activity loss limitations", and a rental activity is passive "regardless of whether you materially participate".

So Form 4835 rent is §1411(c)(1)(A)(i) rent that is not derived in the ordinary course of a non-(c)(2) trade or business. It is also not self-employment income, so (c)(6) does not apply.

Line 4b removes it only in the cases the instructions list: a real estate professional's rental that rises to a §162 trade or business, a rental grouped with a nonpassive business, or property rented to the owner's own nonpassive business.

2. Passive partnership and S-corporation income: already right on main

Since #9306 (first released in 1.816.0), passive_partnership_s_corp_income is in the list. Line 4a takes all of Schedule E Part II, and line 4b takes the nonpassive part back out. Summing only the passive subset gives the same line 4c.

One gap remains. Nonpassive income from a §1411(c)(2)(B) trading business is still NII, and no input carries it. That is out of scope here.

Versions before 1.816.0 have no passive input. Those versions leave Part II income out of NII entirely.

3. How nonpassive amounts come out

• Partnerships and S corporations. By construction: only the passive subset enters.
• Rents. There is no line 4b input for Schedule E Part I rents (rental_income) or for farm rent. This change treats farm rent exactly like rental_income: all of it counts, signed. A line 4b rental input would serve both, and the EITC passive-activity basket needs the same split (EITC investment-income test after #9572: dependents' amounts, passive income that is also earned income, and farm rental #9635, draft Count farm rent and leave out passive income that is also earned in the EITC investment income test (26 U.S.C. 32(i)(2)(E)) #9889). It is a separate change.

Fix

Add farm_rent_income to gov.irs.investment.income.sources. It enters only for the head and spouse, through tax_unit_non_dep_add. A dependent's Form 4835 income goes on the dependent's own Form 8960, as for every other source.

Downstream effects:

• Federal NIIT.
• Minnesota NIIT. Minn. Stat. 290.033(a): "'net investment income' has the meaning given in section 1411(c) of the Internal Revenue Code, excluding the net gain attributable to the disposition of property classified as class 2a under section 273.13, subdivision 23". The exclusion covers gain only, not rent.
• The Biden FY2025 NIIT contrib reform.
• States that deduct federal income tax, through the federal NIIT.

Not affected: AGI, and the EITC investment income test (#9635 / #9889).

Axiom

us/statutes/26/1411.yaml in rulespec-us sums rental_income, a free input that the NIIT pipeline declares as "Post-classification section 1411(c)(1)(A)(i) rents after the ordinary-course exception". No rule maps return lines (Schedule E line 40) into it, and no companion case has farm rent. A dispatch-ready pe-parity issue will follow.