Net Investment Income Tax

What is the Net Investment Income Tax (NIIT)?

The Net Investment Income Tax is a tax that went into effect on January 1, 2013  computed on Form 8960 which affects the income tax returns of individuals, trusts, and estates. The Net Investment Income Tax is a tax at a rate of 3.8% of net investment income computed on the lower of your net investment income or the amount by which your modified adjusted gross income exceeds the income threshold amount below which are determined by your filing status category.

What is Net Investment Income?

Net investment income includes unearned passive type income such as interest, dividends, capital gains, gain on your personal residence, rental income, certain annuities, royalty income, income from businesses with a passive owner and other investment portfolio income.  In order to calculate your net investment income, certain expenses may be allocated to and reduce your investment income.

What types of income are not Net Investment Income?

Earned income such as wages, social security benefits, alimony, tax-exempt interest, unemployment compensation, and self-employment income are not investment income.

What individuals are subject to the Net Investment Income Tax?

Tax returns that are affected will owe tax if  the Net Investment Income and modified adjusted gross income is over the following income levels:

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What types of investment expenses are allocated in computing NII?

Expenses deducted consist of  investment interest expense, income tax preparation fees, investment advisory fees, fiduciary fee, brokerage fees, and custodial fees.

Do tax planning with your accountant so you are aware of the net investment income tax.