Net Investment Income Tax

Investment income is considered anything you earn passively, from a source for which you did not actively work. Typically, this income is earned from an investment, although only the amount that exceeds the expenses or capital losses associated with the investment counts. Examples of investment income include:

  • Dividends from stocks, bonds, or mutual funds
  • Realized gains from selling these financial instruments
  • Interest payments from loans
  • Capital gains from investment property sales — or any property that’s not your primary residence
  • Profits from selling a business, if you were a passive shareholder
  • Rental income
  • The interest from non-qualified annuities
  • Royalty income

The NIIT Thresholds

Put into effect in 2013, the net investment income tax is set at 3.8 percent. Keep in mind that this is net income, so you always get to subtract your expenses, fees, and taxes already paid to arrive at the net sum. It only applies to individuals, trusts, and estates. This is not a business tax.
For high net-worth individuals like you, your net investment income — fewer expenses — is taxable, if it exceeds certain income thresholds. Although the thresholds are subject to change and these figures haven’t been indexed for inflation, the IRS has published the thresholds for the net investment income tax as:

  • $250,000 for married couples who file together
  • $250,000 for a widow or widower with a dependent child — so long as it’s within two years since the spouse’s passing
  • $200,000 for a single individual
  • $200,000 for the head of a household who keeps a home for a “qualifying person,” usually a child, a parent, or another qualifying relative
  • $125,000 for each half of married couples who file separately