Four Things to Know about Net Investment Income Tax

Four Things to Know about Net Investment Income Tax

In general, net investment income includes, but is not limited to: interest,dividends, capital gains, rental and loyalty income, and non-qualified annuities.Generally it doesn’t include wages, unemployment compensation, Social Security Benefits, alimony, and most self employed income.
You may owe this tax if you have income from investments and your income for the year is more than certain limits.Following are the four things that you should know about this tax:

1. Net Investment Income Tax: According to 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: The net investment income generally includes:

(a) interest,
(b) dividends,
(c) capital gains,
(d) non-qualified annuities, and
(e) rental and loyalty income.

This list is not all inclusive.Net investment income doesn’t include unemployment compensation, Social security benefits or alimony, and also any gain on the sale of your main home that you exclude from your income.
Your net investment income is the result get after you add up your total investment income, then subtract your deductions that are properly allocable to this income.

3. Income threshold amounts:

If you have net investment income and your modified adjusted gross income is more than the following amount for your filing status, then you may owe the tax:

Filing status                                      Threshold Amount

Single or Head of household                       $200,000

Married filing jointly                                    $250,000

Married filing separately                             $125,000

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

4. How to report.

You must file Form8960 with your federal tax return if you owe this tax. If you had too little tax withheld or did not pay enough estimated taxes, you may have to pay an estimated tax penalty.

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