Net Investment Income Tax

Home Fairmark Forum Taxation of Investments Net Investment Income Tax

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  • #4977
    wanttoknow
    Participant

    In 2018 I had a large amount of Investment Income (76% of fed. AGI), and thus a large amount of state income tax. I slipped up, and didn’t pay a big chunk of that 2018 state tax until 2019, so I wasn’t able to include it in calculating my 2018 Net Investment Income Tax. According to Kaye Thomas (see the Jan. 2019 thread below), I should be able to include that 2019-paid 2018 state income tax in calculating my 2019 NIIT.

    Net Investment Income Tax

    In 2019 I have a small amount of investment income (3% of fed. AGI) and much less state tax.

    To calculate the amount of state tax to deduct on Form 8960, I am using the ratio suggested in the Form 8960 instructions: Investment income divided by Fed. AGI.

    For the 2019-paid 2018 state tax I would like to use the 2018, rather than 2019, ratio of investment income to fed. AGI. I.e. 76% rather than 3%. Is this permissible?

    (For the 2019 state tax the 3% ratio will be used.)

    This will result in a total deduction of $34,775, which must be reduced to $10,000 to be reported on Lines 9b and 11 of Form 8960. Since the Investment Income is only $6,290, the Net Investment Income will be zero.

    #4979
    kaneohe
    Participant

    Is your NIIT limited by NII or amount of AGI > threshold? For me, it is usually limited by amount of AGI > threshold so I don’t think I get to deduct expenses based on 8960. I guess this might pertain more to your 2018 so perhaps you didn’t slip up……perhaps you wouldn’t have been able to deduct expenses then?

    #4980
    wanttoknow
    Participant

    Kaneohe: For 2018 my Net Investment Income on line 12 was less than MAGI minus $200,000 on line 15. However, that’s irrelevant, and I see now that the first paragraph of my original post was misleading, for which I’m very sorry. I can’t edit the post now, so I’m including the entire post as it should have read originally below:

    In 2018 I had a large amount of Investment Income (76% of fed. AGI), and thus a large amount of state income tax. A big chunk of that 2018 state tax was paid in 2019. According to Kaye Thomas (see the Jan. 2019 thread below), I should be able to include that 2019-paid 2018 state income tax in calculating my 2019 NIIT.

    Net Investment Income Tax

    In 2019 I have a small amount of investment income (3% of fed. AGI) and much less state tax.

    To calculate the amount of state tax to deduct on Form 8960, I am using the ratio suggested in the Form 8960 instructions: Investment income divided by Fed. AGI.

    For the 2019-paid 2018 state tax I would like to use the 2018, rather than 2019, ratio of investment income to fed. AGI. I.e. 76% rather than 3%. Is this permissible?

    (For the 2019 state tax the 3% ratio will be used.)

    State income tax is my only deduction, and the above will result in a total deduction of $34,775, which must be reduced to $10,000 to be reported on Lines 9b and 11 of Form 8960. Since the Investment Income is only $6,290, the Net Investment Income will be zero.

    #6674
    Lewis-H
    Participant

    The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

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