Net Investment Income Tax (NIIT)
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:
- Married filing jointly — $250,000,
- Married filing separately — $125,000,
- Single or head of household — $200,000, or
- Qualifying widow(er) with a child — $250,000.
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. Note 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 exclusion is worth knowing before a home sale, because it keeps a large realized gain out of the NIIT base entirely.