Net Investment Income Tax (NIIT) Calculator

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.