What is the net investment income tax for NIIT? (2024)

What is the net investment income tax for NIIT?

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

What is the NIIT investment income tax rate?

A 3.8 percent net investment income tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.

Who pays the 3.8% net investment tax?

As an investor, you may owe an additional 3.8% tax called net investment income tax (NIIT). But you'll only owe it if you have investment income and your modified adjusted gross income (MAGI) goes over a certain amount.

What is the net investment income tax for 8960?

The tax explained

The net investment income tax (NIIT) is a 3.8-percent tax on the smaller of your net investment income or the amount that your modified adjusted gross income exceeds the tax's thresholds. See how much NIIT you owe by completing Form 8960.

How do you calculate net investment income tax?

How Do I Calculate My Net Investment Income Tax? You can use IRS Form 8960 to calculate your net investment income tax. You can also calculate it yourself by adding together all your investment income and subtracting any related fees and expenses. Then determine your modified adjusted gross income.

What is the 3.8 tax on net investment income?

Basics of the Net Investment Income Tax

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

What is the IRS 3.8 surtax on investment income?

Overview of the NIIT

The NIIT is equal to 3.8% of the net investment income of individuals, estates, and certain trusts. Net investment income includes interest, dividends, annuities, royalties, certain rents, and certain other passive business income not subject to the corporate tax.

Who is exempt from net investment income tax?

Wages, self-employment income, unemployment compensation, business income from nonpassive sources, Social Security benefits, tax-exempt interest, and qualified pension, annuity, and individual retirement account distributions are excluded when calculating the net investment income tax.

What is the NIIT threshold amount for single taxpayers?

Examples of Net Investment Income Tax
Filing StatusMAGI Statutory ThresholdYour Income
Single$200K$170K (wages) + $80K (NII) = $250K (MAGI)
Married Filing Jointly$250K$220K (wages) + $45K (NII) = $265K (MAGI)
Married Filing Separately$125K$150K (wages) + $40K (NII) = $190K (MAGI)
1 more row
Mar 13, 2024

What is the NIIT threshold for 2024?

The NIIT thresholds for 2024 are typically $200,000 for single or head of household, $250,000 for married filing jointly, and $125,000 for married filing separately.

What triggers 8960?

Attach Form 8960 to your return if your modified adjusted gross income (MAGI) is greater than the applicable threshold amount. Use Form 8960 to figure the amount of your Net Investment Income Tax (NIIT).

Is sale of rental property subject to NIIT?

The gain from the sale of rental property is also subject to NIIT unless the rental activity is part of an active trade or business.

Does net investment income tax apply to IRA distributions?

For most people and situations, a person will not owe the 3.8% tax on his or her IRA or pension distribution, but in some situations the tax would be owed. There will be times when a person's IRA distribution will mean the individual will have to pay the 3.8% tax on the IRA distribution. Example.

Is goodwill subject to NIIT?

Because gain from the sale of personal goodwill is income from a personally developed intangible asset that is not passive income, and, generally, income from personal service activities is not passive, the gain from the sale of personal goodwill should not be subject to the net investment income tax.

How can we prevent NIIT?

If your income is high enough to trigger the NIIT, shifting some income investments to tax-exempt bonds could result in less exposure to the tax. Tax-exempt bonds lower your MAGI and avoid the NIIT. Dividend-paying stocks are taxed more heavily as a result of the NIIT.

Is net investment income tax on top of capital gains tax?

Individuals who pay net investment income tax also pay capital gains tax. But, not all individuals who pay capital gains tax owe NII tax. Think of it this way: workers pay Medicare tax on their wages. And, some high-earning workers pay additional Medicare tax on their wages above a certain threshold.

Are Roth conversions subject to NIIT?

Although distributions from a traditional IRA aren't subject to NIIT, they do increase your modified adjusted gross income, which can trigger or increase the NIIT. This is true for the conversion to a Roth IRA. Distributions from Roth IRAs are excluded from gross income, so they aren't subject to NIIT.

How do you calculate investment income?

How Do You Calculate Investment Income? In general, you add up all of the interest, dividends, rents, payments, and royalties received in a year to get your investment income.

Does NIIT apply to depreciation recapture?

While depreciation recapture is taxed purely based on the difference between the tax basis after claimed depreciation, NIIT is taxed on the entire gain of a sale.

How can we avoid the 3.8% Medicare surtax?

Look for ways to minimize your AGI. The lower your AGI (the number at the bottom of the TAX-FORM 1040) the lower the amount of your income will be subject to the 3.8% surtax. Need another reason to contribute to your retirement plan? Making contributions to your 401k, 403b or pension will lower your AGI.

Is the 8960 threshold based on filing status?

The applicable threshold amount is based on your filing status. Married Filing Jointly or Qualifying Surviving Spouse is $250,000. Married Filing Separately is $125,000. Single or Head of Household is $200,000.

Can you deduct brokerage fees on Form 8960?

In order for Advisory and Brokerage fees to be deductible on form 8960 (Net Income investment tax) they must be deductible on Schedule A. However due to the Tax Cuts and Jobs Act of 2017 (TCJA ) ,Advisory and Brokerage fees are no longer deductible (suspended for tax years 2018 to 2025) .

Why are capital losses limited to $3000?

The $3,000 loss limit is the amount that can go against ordinary income. Above $3,000 is where things can get a little complicated. The $3,000 loss limit rule can be found in IRC Section 1211(b). For investors who have more than $3,000 in capital losses, the remaining amount can't be used toward the current tax year.

Is 1202 stock subject to net investment income tax?

1202 gain is subject to tax, the gain would be taxed at 28% plus the 3.8% net investment income tax, instead of regular capital gain rates. Additionally, the amount excluded under IRC Sec. 1202 would be subject to an alternative minimum tax adjustment equal to 7% of the amount excluded.

How many years can you carryover capital losses?

In general, you can carry capital losses forward indefinitely, either until you use them all up or until they run out. Carryovers of capital losses have no time limit, so you can use them to offset capital gains or as a deduction against ordinary income in subsequent tax years until they are exhausted.

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