Net Investment Income Tax (NIIT) Calculator
Calculate the 3.8% NIIT (Section 1411) on dividends, interest, capital gains, and rental income above the high-earner thresholds.
What Triggers NIIT?
The Net Investment Income Tax (Section 1411) is a 3.8% federal tax on investment income for high earners. It applies when (1) you have any net investment income AND (2) your modified AGI exceeds the threshold ($200K single, $250K MFJ, $200K HoH, $125K MFS). The tax base is the LESSER of your investment income or your AGI overage. Two binding conditions — you need both.
Investment income subject to NIIT includes: interest, dividends, capital gains (short and long-term), rental and royalty income (typically), non-qualified annuities, and income from passive trade or business activities. NOT included: distributions from qualified retirement accounts (401k, IRA), Social Security, tax-exempt municipal bond interest, gain on sale of business interests where you materially participated. Source: IRS Section 1411, Form 8960. Last updated: July 2026.
The 'Lesser Of' Rule — Why Some High Earners Pay Less Than Expected
NIIT = 3.8% × (LESSER of net investment income OR AGI over threshold). Example: a single filer with $50K investment income but only $210K AGI. AGI over threshold = $10K. NIIT base = lesser($50K, $10K) = $10K. NIIT = $380. NOT $50K × 3.8% = $1,900. The 'lesser of' rule means investment-income-heavy retirees often pay less NIIT than wage earners with the same investment income but higher AGI.
Strategies to Reduce NIIT
(1) Tax-exempt municipal bonds generate interest income NOT subject to NIIT (or federal income tax). Particularly attractive for high-AGI investors. (2) Qualified retirement accounts — 401(k) and IRA distributions are EXEMPT from NIIT. Maximize retirement contributions to shift investment income into a tax-deferred shelter. (3) Tax-loss harvesting reduces net investment income, lowering both regular cap gains tax AND NIIT. (4) Charitable donations of appreciated stock — eliminates gain (no NIIT) AND provides itemized deduction. (5) Roth conversions in low-AGI years avoid the 3.8% NIIT layer on the converted amount permanently.
NIIT and Real Estate Investors
Rental income is generally subject to NIIT EXCEPT if you qualify as a real estate professional under IRC Section 469(c)(7). Real estate professionals (750+ hours per year in real estate trades AND more than half of total personal services hours) can treat rental income as active business income — exempt from NIIT. Property managers and full-time landlords often qualify; passive owners with day jobs do not. Document hours meticulously if you plan to claim professional status — IRS audits this area aggressively.
Form 8960 Line-by-Line: Filing NIIT with Your 2026 Tax Return
Per IRS Form 8960 (Net Investment Income Tax — Individuals, Estates, and Trusts), the calculation flows in three parts: Part I sums all investment income (lines 1-8: interest, dividends, annuities, rental/royalty, PFIC/QEF, changes in CFC/PFIC, other). Part II subtracts allowable investment expenses (lines 9-11: investment interest, state income tax allocated to investment income, miscellaneous). Part III compares MAGI to the threshold and computes 3.8% × lesser(net investment income, MAGI overage). The result appears on Schedule 2 line 12, then flows to Form 1040 line 23. Common 2026 filing errors: forgetting the MAGI addbacks (foreign earned income exclusion under Section 911, tax-exempt bond interest is NOT added back to MAGI for NIIT), and mistakenly excluding sale of a rental property held as passive activity. Software like TurboTax and H&R Block auto-generate Form 8960 once you enter Schedule B, D, and E, but always verify the Part I line-1 interest figure matches your 1099-INT total. Updated 2026-07-02.
Frequently Asked Questions
What is Net Investment Income Tax?
A 3.8% federal tax on investment income for high earners, created by ACA Section 1411 (effective 2013). Applies when both (1) you have investment income AND (2) modified AGI exceeds $200K single / $250K MFJ. Tax base is the LESSER of investment income or AGI overage.
Is NIIT in addition to capital gains tax?
Yes \u2014 NIIT stacks on top of regular tax. A high earner with $50K long-term capital gain pays 15-20% federal cap gains tax PLUS 3.8% NIIT = up to 23.8% federal. Short-term gains are taxed at ordinary rates (up to 37%) plus 3.8% NIIT = up to 40.8% federal. Add state tax on top.
Do retirement account withdrawals trigger NIIT?
No. Distributions from qualified retirement accounts (401k, traditional IRA, Roth IRA, 403b, 457) are EXEMPT from NIIT. This is one of the strongest tax-advantages of these accounts \u2014 every dollar earned inside escapes the 3.8% layer. Even ordinary IRA withdrawals (which are taxed as ordinary income) don't trigger NIIT.
What investment income is NOT subject to NIIT?
Tax-exempt municipal bond interest, qualified retirement account distributions (401k, IRA, Roth, etc.), Social Security benefits, alimony (no longer treated as income post-TCJA), self-employment income (already covered by SE tax), wages and salary (already covered by Medicare tax), gain on sale of an interest in a partnership/S-corp where you materially participated.
How do I report NIIT?
File Form 8960 with your Form 1040. The 3.8% tax flows to Form 1040 line 23 'Other Taxes' (Schedule 2). Many tax software programs auto-calculate it once you've entered investment income and total AGI.
Does NIIT apply to a home sale gain?
Generally no for primary residence under the $250K/$500K Section 121 exclusion. Gain above the exclusion threshold IS subject to NIIT if your AGI is above threshold. Investment property gains (rentals, second homes) are subject to NIIT unless you qualify as a real estate professional.
Are the NIIT thresholds ($200K single / $250K MFJ) indexed to inflation?
No — this is critical. The Section 1411 thresholds have been FIXED at $200K single / $250K MFJ since 2013 with no inflation adjustment. Wage growth has pushed millions more taxpayers over the threshold every year, and Congress has not amended this since ACA passage. Plan accordingly: high earners who were 'safely below' the NIIT line in 2015 are increasingly hitting it in 2026, especially in high-COL metros where salaries and investment portfolios have grown 40-60% while the threshold stayed frozen.
How is NIIT calculated on Form 8960 for a trust or estate?
Trusts and estates hit NIIT much sooner — the 3.8% applies to net investment income above the top ordinary income bracket threshold ($15,650 in 2026, indexed). File Form 8960 with Form 1041. The compressed brackets mean $30K of trust investment income easily triggers NIIT. Distributing income to beneficiaries can shift the NIIT liability to their (much higher) personal thresholds — a common estate-planning strategy that assumes beneficiaries have MAGI well under $200K.