Net Investment Income (NII) Tax

Starting in 2013, there is a 3.8% Net Investment Income (NII) tax on the lesser of Net Investment Income or the excess of Modified Adjusted Gross Income (MAGI) over the applicable threshold for Higher Income Taxpayers.

Net Investment Income includes:

  • Interest, Dividends, Annuities, Rents and Royalties
  • Gains from the sale of property not used in business
  • Gains from the sale of stocks, bonds, and mutual funds
  • Capital gains distributions from mutual funds
  • Gains from the sale of interest in a partnership and S-corporations if you are a passive owner

What can be deducted?
Investment expenses, such as investment interest expense, investment advisory and brokerage fees are deductible in the NII calculation.

What about Capital Losses and Capital Loss Carryforwards?

  • Losses are netted to the extent that there is a net loss of ($3,000).
  • Loss carryfowards from prior years can also be netted.

Who is a Higher Income Taxpayer?

  • Married Filing Jointly with modified adjusted gross income (MAGI) over $250,000
  • Individuals with modified adjusted gross income (MAGI) over $200,000