The ‘Net Investment Income Tax (NIIT) is a 3.8% federal surtax on investment income for individuals, estates and trust with higher income. It was introduced in 20143 to help fund healthcare reforms.
It is calculated on capital gains from selling stocks, bonds and real estate, dividends, interest income, rental and royalty income, and passive business income.
If applies if your ‘Modified Adjusted Gross Income’ exceeds the following limits:
Single or Head of Household – $200,000
Married Filing Jointly – $250,000
Married Filing Separately – $125,000
Estates and Trusts – $16,000
In a couple of cases before the courts, the Court has decided that you cannot use a foreign tax credit to offset this tax.
In other words, that you cannot rely on Tax Treaty to avoid paying this tax.
