What is the NIIT for long-term capital gains? (2024)

What is the NIIT for long-term capital gains?

Additionally, high-income earners may also be subject to the net investment income tax (NIIT), which adds an extra 3.8% tax on investment income, including capital gains, for individuals with modified adjusted gross income (AGI) above certain thresholds.

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Are long-term capital gains subject to NIIT?

Net investment income includes:

Capital gains (short- and long-term)

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At what income does the 3.8 surtax kick in?

A Medicare surtax of 3.8% is charged on the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over a set threshold amount. The threshold is $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all other filers.

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What income is subject to 3.8% net investment tax?

Those who are subject to the tax will pay 3.8 percent on the lesser of the following: their net investment income or the amount by which their modified adjusted gross income (MAGI) extends beyond their specific income threshold. Net investment income typically includes the following: interest. dividends.

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What is the IRS 3.8 surtax on investment income?

A 3.8 percent net investment income tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.

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What is the NIIT capital gains tax?

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

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What capital gains are not subject to NIIT?

Wages, self-employment income, unemployment compensation, business income from nonpassive sources, Social Security benefits, tax-exempt interest, and qualified pension, annuity, and individual retirement account distributions are excluded when calculating the net investment income tax.

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How do I avoid paying 3.8% Medicare Surtax?

Look for ways to minimize your AGI. The lower your AGI (the number at the bottom of the TAX-FORM 1040) the lower the amount of your income will be subject to the 3.8% surtax. Need another reason to contribute to your retirement plan? Making contributions to your 401k, 403b or pension will lower your AGI.

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What is the NIIT income threshold for 2024?

For individuals, the thresholds are: Single or head of household: $200,000. Married filing jointly: $250,000. Married filing separately: $125,000.

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What is the NIIT tax for 2024?

The net investment income tax (NIIT) is a 3.8% tax that kicks in if you have investment income and your income exceeds $200,000 for single filers, $250,000 for those married filing jointly or $125,000 for those married filing separately.

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What are the exceptions to the NIIT?

The NIIT isn't levied on any interest and dividends that are normally excluded from federal income tax. At the top of the list for investors: tax-exempt state and municipal bond interest. Moreover, tax-exempt interest doesn't count in your MAGI for NIIT, so it could help keep you below the $200,000/$250,000 threshold.

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Is sale of second home subject to NIIT?

If the home is a nonprincipal residence (a vacation home, for example) or you don't meet the two-year requirement, the entire gain will be subject to capital gains taxes and, depending on your MAGI, NIIT.

What is the NIIT for long-term capital gains? (2024)
Is the sale of rental property subject to NIIT?

The gain from the sale of rental property is also subject to NIIT unless the rental activity is part of an active trade or business. If the real estate activity is considered a passive activity, any gain on the sale of property would generate gain that would be subject to the net investment income tax.

Is goodwill subject to NIIT?

Because gain from the sale of personal goodwill is income from a personally developed intangible asset that is not passive income, and, generally, income from personal service activities is not passive, the gain from the sale of personal goodwill should not be subject to the net investment income tax.

Is net investment income tax on top of capital gains tax?

Individuals who pay net investment income tax also pay capital gains tax. But, not all individuals who pay capital gains tax owe NII tax. Think of it this way: workers pay Medicare tax on their wages. And, some high-earning workers pay additional Medicare tax on their wages above a certain threshold.

Does the 3.8 Medicare tax apply to capital gains?

It applies to taxpayers above a certain modified adjusted gross income (MAGI) threshold who have unearned income including investment income, such as: Taxable interest. Dividends. Realized capital gains.

What is an example of NIIT tax?

For example, if you were a single filer who earned $250,000, and $25,000 of that was net investment income, your NIIT would be based on only the income you earned from your investments. That's because $25,000 is less than $50,000—the difference between the $200,000 cutoff and $250,000. Your NIIT would then be $950.

How do you calculate net capital gains tax?

How to calculate capital gains tax — step-by-step
  1. Determine your basis. ...
  2. Determine your realized amount. ...
  3. Subtract your basis (what you paid) from the realized amount (how much you sold it for) to determine the difference. ...
  4. Review the descriptions in the section below to know which tax rate may apply to your capital gains.

Does NIIT apply to short-term capital gains?

Yes NIIT includes capital gain regardless of duration (but not the excluded amount on sale of your home), and no Additional Medicare Tax (like normal FICA/SECA) does not include any investment income.

Is a 1231 gain subject to NIIT?

All gains from the sale of property are generally included in net investment income under Reg. Section 1.1411-4(a)(1)(iii). Included within the purview of “three little i” gains are long-term and short-term capital gain, Section 1231 gain, Section 1245 ordinary income recapture, and unrecaptured Section 1250 gain.

Is sale of land subject to NIIT?

One of those, the NIIT, applies to passive income of taxpayer's with income above a certain threshold. The NIIT can easily be triggered upon sale of particular assets that have been held for investment or other purposes, including farmland. Some planning may be required to avoid its impact.

How many years can you carryover capital losses?

In general, you can carry capital losses forward indefinitely, either until you use them all up or until they run out. Carryovers of capital losses have no time limit, so you can use them to offset capital gains or as a deduction against ordinary income in subsequent tax years until they are exhausted.

What triggers Medicare surtax?

A 0.9% Additional Medicare tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation that exceed the following threshold amounts based on filing status: $250,000 for married filing jointly; $125,000 for married filing separately; and. $200,000 for all other taxpayers.

Do capital gains affect Medicare premiums?

Answer: A big-enough capital gain can trigger Medicare's income-related adjustment amount, which are surcharges on your Part B and Part D premiums. As you note, there's a two-year delay between the higher income on your tax returns and higher premiums.

Why do I have to pay Medicare surtax?

This additional tax payment has been around since 2013 as part of the Affordable Care Act (ACA). The Additional Medicare Tax liability helps fund some parts of ACA, including premium tax credits (PTC). PTCs help lower-income Americans buy affordable individual or family health insurance.

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