What is the purpose of Form 8960?
When to file Form 8960
If your net investment income is $1 or more, Form 8960 helps you calculate the NIIT you owe by multiplying the amount by which your MAGI exceeds the applicable threshold or your net investment income—whichever is the smaller figure—by 3.8 percent.
What is net investment income?
In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.
Who is subject to NIIT?
A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.
How is NIIT tax calculated?
Calculating NIIT is not just as simple as multiplying your net investment earnings by 3.8%. The IRS gives you a pass. You are charged 3.8% of the lesser of net investment income or the amount by which the MAGI exceeds the income thresholds you must pass to incur NIITs.
Is net investment income tax deductible?
Examples of deductible items that may be allocated to net investment income include investment interest expense; state, local, and foreign income tax; and miscellaneous investment expenses. … Net investment income does not include income excluded from gross income for income tax purposes.
Can net investment income tax be negative?
The difference between any realized gains (before taxes are applied) and trade commissions or fees is the net investment income (NII). NII could be either positive or negative depending on whether the asset was sold for a capital gain or loss.
How do you avoid net investment tax?
Strategies to Reduce Your Modified Adjusted Gross Income:
- Invest more taxable investment funds in municipal bonds. …
- Invest taxable investment funds in growth stocks. …
- Consider conversion of traditional IRA accounts to ROTH accounts. …
- Invest in life insurance and tax-deferred annuity products. …
- Invest in rental real estate.
Is rental income subject to the net investment income tax?
Net rental income is subject to the NIIT and so is the capital gain on the sale of rental property. Your unearned income is subject to the NIIT if your AGI exceeds $200k if single and $250k if married filing joint. … Income from investment assets including rents, dividends, interest and annuities.
Is investment income taxable?
Normally, investment income includes interest and dividends. The income you receive from interest and unqualified dividends are generally taxed at your ordinary income tax rate. Certain dividends, on the other hand, can receive special tax treatment, which are usually taxed at lower long-term capital gains tax rates.
Is net investment income tax repealed?
Repeal of the NIIT is also a policy option. This In Focus provides an overview of the tax, presents data on the distribution of the tax, and considers several policy options. The NIIT is equal to 3.8% of the net investment income of individuals, estates, and certain trusts.