This is a tax on investment income, at a rate of 3.8%, on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold based on your filing status.
The income thresholds are as follows:
- Single or head of household – $200,000
- Married, filing jointly, or qualifying widow(er) with a child – $250,000
- Married, filing separately – $125,000
The general types of taxable investment income include:
- Capital gains
- Rental and royalty income
- Non-qualified annuities
Capital gains include the sale of stocks, bonds and mutual funds, and gains from the sale of investment real estate or businesses.
Also included as taxable income is income from businesses involved in trading financial instruments or commodities, but which are passive activities to the taxpayer, such as a partnership interest where the taxpayer has no say in the management of the business.
Types of income that are not considered investment income are:
- Active businesses
- Social Security benefits
- Self-employment income
These are taxable under regular income rules.
Tax-exempt interest is also not considered net investment income.
Many of you might have seen Net Investment Income Tax on your tax return last year and will probably see it again this year. Now you will have a better understanding of what it means and why it applies to you.
If you have any questions about the Net Investment Income Tax, ask your tax preparer, or you can always call us at 914-682-7007.