Which IRS form is used to calculate the 3.8% net investment income tax? (2024)

Which IRS form is used to calculate the 3.8% net investment income tax?

If an individual owes the net investment income tax, the individual must file Form 8960PDF. Form 8960 InstructionsPDF provides details on how to figure the amount of investment income subject to the tax.

What is the 3.8% charge on net investment income?

NIIT is a tax on net investment income. Those who are subject to the tax will pay 3.8 percent on the lesser of the following: their net investment income or the amount by which their modified adjusted gross income (MAGI) extends beyond their specific income threshold.

What is the IRS form 8960 used for?

Purpose of Form

Use Form 8960 to figure the amount of your Net Investment Income Tax (NIIT).

What is the tax rate for Form 8960?

The net investment income tax (NIIT) is a 3.8-percent tax on the smaller of your net investment income or the amount that your modified adjusted gross income exceeds the tax's thresholds. See how much NIIT you owe by completing Form 8960.

How to calculate NIIT tax?

What is an example of a 3.8 net investment income tax?

Example 1:

Let's say you have $30,000 in net investment income and your MAGI goes over the threshold by $50,000. You'll owe the 3.8% tax. But you'll only owe it on the $30,000 of investment income you have—since it's less than your MAGI overage. Your additional tax would be $1,140 (.

How do I avoid 3.8% investment tax?

Sell investments at a loss to offset investment gains. Defer capital gain, such as selling the investment in the future instead of selling it now. Use Section 1031 like-kind exchange which is selling an investment property and using that money to buy another investment property.

At what income level does the 3.8 surtax kick in?

A Medicare surtax of 3.8% is charged on the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over a set threshold amount. The threshold is $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all other filers.

What tax form is used for investment income?

The federal tax laws require brokerage firms, mutual funds, and other entities to report on Form 1099 all investment income, usually interest or dividends, they have paid to investors during the previous tax year.

How to print form 8960?

You can force Form 8960 to print by checking the option on the PRNT screen in data entry of the relevant return. Depending on the circ*mstances, rental real estate income may or may not be subject to NII tax.

How to calculate Form 8960 line 9b?

Line 9b is calculated from the state, local, and foreign income tax attributable to NII - generally Schedule A, line 7. * This amount is subject to limitation based on the ratio of Form 8960, line 8 divided by the AGI on Form 1040.

Do I have to pay net investment income tax?

The net investment income tax (NIIT) rate is 3.8%. You have to pay the NIIT if your MAGI exceeded $200,000 (for single filers) and you had investment income. You can potentially avoid paying the NIIT by lowering your MAGI.

Which TurboTax do I need if I have investment income?

TurboTax offers some of the most popular tax preparation software on the market. You may opt to use TurboTax Deluxe if you make your money through W-2 employment and intend to take line-item deductions instead of the standard deduction. TurboTax Premier may be a better option if you have investment income or losses.

What is the 3.8 tax?

The Net Investment Income Tax (“NIIT”) or Medicare Tax is a 3.8% surtax imposed by Section 1411 of the Internal Revenue Code on investment income.

What is the 3.8 capital gains tax?

Effective Jan. 1, 2013, individual taxpayers are liable for a 3.8 percent Net Investment Income Tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount based on their filing status.

Who pays 3.8 net investment tax?

The NIIT is equal to 3.8% of the net investment income of individuals, estates, and certain trusts. Net investment income includes interest, dividends, annuities, royalties, certain rents, and certain other passive business income not subject to the corporate tax.

What capital gains are not subject to NIIT?

Wages, self-employment income, unemployment compensation, business income from nonpassive sources, Social Security benefits, tax-exempt interest, and qualified pension, annuity, and individual retirement account distributions are excluded when calculating the net investment income tax.

How do you calculate net investment?

As mentioned, net investment is calculated by subtracting depreciation from gross capital expenditures. Capital assets that are purchased usually deteriorate over their useful lives. The deterioration of assets comes from several factors, such as: Breakdown of the assets.

Does NIIT apply to IRA distributions?

Although distributions from a traditional IRA aren't subject to NIIT, they do increase your modified adjusted gross income, which can trigger or increase the NIIT. This is true for the conversion to a Roth IRA. Distributions from Roth IRAs are excluded from gross income, so they aren't subject to NIIT.

What is the 3.8 investment tax for 2024?

All About the Net Investment Income Tax

More specifically, this applies to the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) surpasses the filing status-based thresholds the IRS imposes. The NIIT is set at 3.8% for 2024, as it was for 2023.

Is the income from a Roth conversion subject to the 3.8 tax on net investment income?

3.8% surtax on net investment income

While income resulting from a Roth conversion is not subject to the 3.8% surtax, it could increase MAGI to the extent other income — such as capital gains — is subject to the surtax.

How to minimize niit?

How to avoid tax on CD interest?

How to avoid taxes on CD interest. One way to postpone being taxed on CDs is to put them in a tax-deferred individual retirement account (IRA) or 401(k). As long as money placed in a traditional IRA is below the annual contribution limit, interest you earn may be tax deductible.

Is there a Medicare tax of 3.8 percent on the net investment income of high income taxpayers?

The Medicare surtax applies to taxpayers above certain income thresholds. If the surtax applies to you, you'll owe an additional 3.8% tax rate on your investment income.

What triggers Medicare Surtax?

Additional Medicare Tax withholding applies only to wages paid to an employee that are in excess of $200,000 in a calendar year. Withholding rules for this tax are different than the income tax withholding rules for supplemental wages in excess of $1,000,000 as explained in Publication 15, section 7. Example.