Reply To: Net Investment Income Tax

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Kaye Thomas

I wasn’t as clear as I meant to be. What I meant is that you don’t have to allocate the post-reduction amount. You do the allocation based on the total amount paid in 2018 (you can’t include the amount paid in 2019). If this calculation allocates $10,000 or more to your net investment income, then you can deduct the entire $10,000 against NII.

To put it a different way, you can treat the dollars that are being disallowed by the $10,000 limit as coming first from the dollars that are allocated to income other than NII.

Initially, in the proposed NIIT regs, you would have had to allocate the $10,000 between NII and other income. Someone submitted a comment to Treasury saying this more favorable method should be acceptable, and the Treasury agreed, so that’s what the final regs say.

Or at least, that’s what they say about other limitations. The regs were written before we had this $10,000 limit, but the regs make it clear how the rules should apply to the new limit.