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Four Things to Know about Net Investment Income (NII) Tax

posted Dec 6, 2014, 8:59 PM by Zaher Fallahi

Starting in 2013, certain high income taxpayers may be subject to the NII.  You may owe this tax if you have income from investments and your income for the year is in excess of threshold explained below. Here are four things from the IRS that you should know about this tax:

Net Investment Income Tax.  The 3.8% tax is imposed on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a limit based on your filing status.

Net investment income.  This amount generally includes income such as:

interest,

dividends,

capital gains,

rental and royalty income, and

non-qualified annuities.

This list is not all-inclusive. Net investment income normally does not include wages and most self-employment income. It does not include unemployment compensation, Social Security benefits or alimony. NII also does not include any gain on the sale of your main home that you exclude from your income.

After you add up your total investment income, you then subtract your deductions that are properly allocable to this income. The result is your net investment income. Refer to the instructions for Form 8960 Net Investment Income Tax for more on how to figure your net investment income or MAGI.
 

Income threshold amounts.  You may owe the tax if you have net investment income and your modified adjusted gross income is more than the following amount for your filing status:  

 

Filing Status  

Threshold Amount

Single or Head of household

$200,000

Married filing jointly  

$250,000

Married filing separately

$125,000

Qualifying widow(er) with a child

$250,000

How to report.  If you owe this tax, you must file Form 8960 with your federal tax return. If you had too little tax withheld or did not pay enough estimated taxes, you may have to pay an estimated penalty.

Zaher Fallahi is a 1983 CPA and practices as Los Angeles Tax CPA and Orange County Tax CPA, and assists clients in solving their tax problems.  Telephones: Los Angeles (310) 719-1040 and Orange County (714) 546-4272, e-mail: taxattorney@zfcpa.com

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