Reply To: Net Investment Income Tax

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Based on what Kaye Thomas said in this thread, I believe the state income tax allocated on Form 8960 for a particular tax year has to have been deducted on Schedule A(1040) for that same tax year.

He said “You don’t deduct state income tax you pay after the end of the year in calculating regular income tax, so you can’t deduct it in calculating NIIT.” and ”You do the allocation based on the total amount paid in 2018 (you can’t include the amount paid in 2019).”

Since I was unsure what was correct, until 2018 I had been allocating on the 8960 based on all the state income tax incurred for the tax year and paying the tax in full before the end of the year. But for 2018 I slipped up and forgot to pay the last installment before 1/1/19. So that will have to go into the allocation for the 2019 8960.

And now we have the added wrinkle of the $10,000 limit on the taxes deduction on Schedule A. According to what Kaye said, allocation for the 8960 can be based on all state income tax deducted on Sched. A line 5a. But if the allocation exceeds $10,000, it must be reduced to $10,000.