Taxes From A To Z (2018): N Is For NIIT

It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss, you won’t want to miss a single letter.

N is for NIIT

The Net Investment Income Tax (NIIT) is an extra 3.8% levy on certain investment income for high-wage earners. It’s been around since 2013 but continues to confuse taxpayers. Here’s what you need to know.
The NIIT kicks in when your modified adjusted gross income (MAGI) hits the following amounts:

$250,000 for married filing jointly or qualifying widow(er)
$125,000 for married filing separately
$200,000 in all other cases, including singles

The thresholds are not adjusted for inflation.

NIIT typically includes interest, dividends, capital gains, rental and royalty income, nonqualified annuities, income from “passive activities” in business, and income from businesses involved in the trading of financial instruments or commodities.

For NIIT purposes, those capital gains include not only stocks and real estate but also gold and crypto.

NIIT doesn’t include tax-exempt state or municipal bond interest, Veterans Administration benefits, or gain from the sale of a principal residence (but only the bit excluded for income tax purposes, as the overage would be subject to the NIIT). Keep in mind that tax-exempt interest is not included in your MAGI for NIIT purposes, which could help you below stay below the threshold.

You report NIIT using a form 8960, Net Investment Income Tax-Individuals, Estates, and Trusts (downloads as a PDF).

Since the NIIT affects your tax due, you may wish to make changes to your withholding. For more on withholding and adjusting your form W-4, click here.

As for tax reform? It does not affect the NIIT.

For your taxes from A to Z, here’s the rest of the series: