Is Net Investment Income Tax a Concern for You?

By Elsie Dudukovich0 Comments

If you have income from investments and your income exceeds IRS-set limits for the year, the Net Investment Income Tax could apply to you. According to the law, if either your net investment income or the amount by which your Modified Adjusted Gross Income (MAGI) exceeds the threshold amount allowed based on your filing status, you may be required to pay a 3.8 percent tax on the lesser of these two amounts. 
First, let’s take a look at what is normally not considered net investment income:
  • Wages
  • Most self-employment income
  • Unemployment compensation
  • Alimony
  • Social Security benefits
Net investment income can come from a variety of sources.  While many people consider their personal home an investment, any gains from the sale of your main home are not considered investment income because they are excluded from gross income for regular tax purposes.  Generally speaking, net investment income is generated from any of the following:
  • Interest
  • Capital gains
  • Rental income
  • Royalties
  • Dividends
  • Non-qualified annuities
While Form 8960 can help you review if net investment income tax applies to you, seeking guidance from a qualified third party can help you navigate this possible tax event.