This post is part of our series on Taxes Related to Real Estate
- Real Estate Rental Income and Expenses
- Income Losses and Credits from Passive Activities Explained
- Understanding Capital Gains and Losses
- General ITIN (Individual Taxpayer Identification Number) Information
- What is FIRPTA Withholding?
- Taxes When Renting Residential and Vacation Property
A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.
In the case of an individual, the NIIT is 3.8 percent on the lesser of:
- the net investment income, or
- the excess of modified adjusted gross income over the following threshold amounts:
- $250,000 for married filing jointly or qualifying widow(er) with dependent child
- $125,000 for married filing separately
- $200,000 in all other cases
Estates & Trusts
In the case of an estate or trust, the NIIT is 3.8 percent on the lesser of:
- (A) the undistributed net investment income, or
- (B) the excess (if any) of:
- the adjusted gross income over the dollar amount at which the highest tax bracket begins for an estate or trust for the tax year. (For estates and trusts, the 2015 threshold is $12,300)
Definition of Net Investment Income and Modified Adjusted Gross Income
In general, net investment income for purpose of this tax, includes, but is not limited to:
- interest, dividends, certain annuities, royalties, and rents (unless derived in a trade or business in which the NIIT does not apply),
- income derived in a trade or business which is a passive activity or trading in financial instruments or commodities, and
- net gains from the disposition of property (to the extent taken into account in computing taxable income), other than property held in a trade or business to which NIIT does not apply.
The NIIT does not apply to certain types of income that taxpayers can exclude for regular income tax purposes such as tax-exempt state or municipal bond interest, Veterans Administration benefits, or gain from the sale of a principal residence on that portion that is excluded for income tax purposes.
Modified adjusted gross income (MAGI), for purposes of the NIIT, is generally defined as adjusted gross income (AGI) for regular income tax purposes increased by the foreign earned income exclusion (but also adjusted for certain deductions related to the foreign earned income). For individual taxpayers who have not excluded any foreign earned income, their MAGI is generally the same as their regular AGI.