In calculating the tax on net investment income, gross investment income means the total amount of income from interest, dividends, rents, payments with respect to securities loans (as defined in Code section 512(a)(5)), and royalties (including overriding royalties) received by a pri­vate foundation from all sources. It does not include income included in determining the tax on unrelated business income. However, it does include interest, dividends, rents, and royalties received from assets devoted to charitable activ­ities. Therefore, interest received on a student loan would be includible in the gross investment income of a private foundation making the loan.

The Pension Protection Act of 2006 makes clear that for taxable years beginning after enactment, gross investment income includes income from sources similar to those already specified. It also changes the treatment of capital gains and losses so that all capital gains and losses are included in gross income, with a specific exception for like-kind exchanges of related-use property. The law now also provides that no carrybacks or carryovers of capital losses are allowed in computing gross investment income. Finally, it redefines capital gain net income to include property used for the product of gross investment income.

Additional information:

Return to Life cycle of a private foundation