Four Things to Know about Net Investment Income Tax

If it’s one thing I have been getting questions about, it’s the new Net Investment Income Tax as calculated on Form 8960.  Here’s something from the IRSon it…

Starting in 2013, some taxpayers may be subject to the Net
Investment Income Tax
. You may owe this tax if you have income from
investments and your income for the year is more than certain limits. Here are
four things from the IRS that you should know about this tax:

1. Net Investment Income Tax.  The law requires a tax of 3.8
percent on the lesser of either your net investment income or the amount by
which your modified adjusted gross income exceeds a threshold amount based on
your filing status.

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

  • interest
  • dividends
  • capital gains
  • rental and royalty income
  • 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. Net investment income 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
, Net Investment Income Tax for more on how to figure your net
investment income or MAGI.

3. 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

 Married filing jointly                        $250,000

 Married filing separately

 Qualifying widow(er) with a
child       $250,000

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

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