Rental Income PHC Exclusion

§ 543. Personal holding company income(a) General ruleFor purposes of this subtitle, the term “personal holding company income” means the portion of the adjusted ordinary gross income which consists of:(1) Dividends, etc.Dividends, interest, royalties (other than mineral, oil, or gas royalties or copyright royalties), and annuities. This paragraph shall not apply to—(A) interest constituting rent (as defined in subsection (b)(3)), (B) interest on amounts set aside in a reserve fund under chapter 533 or 535 of title 46, United States Code, (C) dividends received by a United States shareholder (as defined in section 951(b)) from a controlled foreign corporation (as defined in section 957(a)), (D) active business computer software royalties (within the meaning of subsection (d)), and (E) interest received by a broker or dealer (within the meaning of section 3(a)(4) or (5) of the Securities and Exchange Act of 1934) in connection with—(i) any securities or money market instruments held as property described in section 1221(a)(1), (ii) margin accounts, or (iii) any financing for a customer secured by securities or money market instruments. (2) RentsThe adjusted income from rents; except that such adjusted income shall not be included if—(A) such adjusted income constitutes 50 percent or more of the adjusted ordinary gross income, and (B) the sum of—(i) the dividends paid during the taxable year (determined under section 562), (ii) the dividends considered as paid on the last day of the taxable year under section 563(c) (as limited by the second sentence of section 563(b)), and (iii) the consent dividends for the taxable year (determined under section 565), equals or exceeds the amount, if any, by which the personal holding company income for the taxable year (computed without regard to this paragraph and paragraph (6), and computed by including as personal holding company income copyright royalties and the adjusted income from mineral, oil, and gas royalties) exceeds 10 percent of the ordinary gross income. (3) Mineral, oil, and gas royaltiesThe adjusted income from mineral, oil, and gas royalties; except that such adjusted income shall not be included if—(A) such adjusted income constitutes 50 percent or more of the adjusted ordinary gross income, (B) the personal holding company income for the taxable year (computed without regard to this paragraph, and computed by including as personal holding company income copyright royalties and the adjusted income from rents) is not more than 10 percent of the ordinary gross income, and (C) the sum of the deductions which are allowable under section 162 (relating to trade or business expenses) other than—(i) deductions for compensation for personal services rendered by the shareholders, and (ii) deductions which are specifically allowable under sections other than section 162, equals or exceeds 15 percent of the adjusted ordinary gross income.