If your income is over a certain amount, you may be subject to the NIIT. NIIT is a 3.8% tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the threshold amount. Net investment income may include rental income and other income from passive activities. Use Form 8960 to figure this tax.
The statutory threshold amounts are:
In essence, your net investment income encompasses a variety of sources, such as interest, dividends, capital gains, and income from rentals, royalties, and non-qualified annuities. However, that the profit you make from selling your personal home — as long as it’s exempt from gross income for your regular income taxes — doesn’t count towards your net investment income. This distinction is crucial for understanding what contributes to your investment earnings and what doesn’t, helping you to plan and manage your finances more effectively.