Reply To: Net Investment Income Tax

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Kaye Thomas

No way you would guess what is subtitle A without background in tax law, so I should have clarified. In the tax regulations, a reference to subtitle A means the part of the Internal Revenue Code that tells how the income tax works.

It probably would be a good idea to mention this in “What’s New” for the form instructions, and I’d get a message off to someone about that if not for the fact that anyone who might deal with that message is on involuntary vacation just now. But you’ve drawn my attention to page 12 of the draft instructions where the list of deductions that may be allocated includes:

State, local, and foreign income taxes if properly deducted on your return when calculating your U.S. regular income tax.

Treatment of the deduction under AMT doesn’t matter, even if you end up paying AMT, which is unlikely. The issue is whether you are deducting this amount in calculating your regular income tax. Many people who have itemized in the past, based largely on the itemized deduction for state and local tax (SALT), won’t be itemizing under the new rules, which both limit the SALT deduction and increase the standard deduction.

And that raises an interesting prospect. It could make sense to choose itemized deductions even if they come out somewhat smaller than the standard deduction so that the SALT deduction is available for NIIT. If you don’t itemize, you don’t have a deduction you can use in calculating net investment income.

As for using the payment made in 2019, the answer is yes, assuming you itemize in 2019. It sounds like that won’t matter for you, though, because the $10,000 limit on SALT will apply again, and I’m guessing you’ll have more than that amount in SALT payments related to your 2019 investment income.