Net Investment Income Tax Individuals Estates Trusts, Form 8960

Form 8960 helps calculate the Net Investment Income Tax (NIIT), a 3.8% tax on certain investment income for individuals, estates, and trusts exceeding specific thresholds. This guide explains who needs to file, what income counts, and how to use the form.

Who needs to file Form 8960?

Individuals: If your Modified Adjusted Gross Income (MAGI) surpasses $200,000 (single) or $250,000 (married filing jointly) in 2023.

Estates and Trusts: If their AGI exceeds $14,450.

What counts as Net Investment Income?

Generally: Interest, dividends, capital gains, rents, and royalties not derived from an active business.

Specifically:

• • Interest income from savings accounts, bonds, and certificates of deposit.
  • Dividend income from stocks and mutual funds.
  • Capital gains (net of losses) from selling investments.
  • Rental income from real estate not actively managed.
  • Royalties from copyrights, patents, and trademarks.

Key Points about Form 8960:

• Thresholds: The NIIT applies only to income exceeding the thresholds mentioned above.
• Calculation: Form 8960 helps determine the taxable amount and calculate the 3.8% NIIT.
• Filing: Attach the completed Form 8960 to your main tax return (Form 1040, 1040-SR, or 1041).
• Exceptions: Some income, like qualified retirement distributions and municipal bond interest, are exempt.

Key steps to file Form 8960:

Step 1: Compile details of all your investment income and deductions.

Step 2: Subtract allowable deductions from your investment income.

Step 3: Check if your MAGI and net investment income exceed the filing thresholds.

Step 4: Fill out Form 8960. Follow the instructions carefully, calculating the NIIT based on applicable rates and exemptions.

Step 5: Attach Form 8960. Include it with your main tax return (Form 1040, 1040-SR, or 1041).