NIIT 3.8% Rental Income Passive Activity 2026 Calculator

NIIT rental income 2026 is the 3.8% Net Investment Income Tax under IRC §1411 that applies to passive rental net income when MAGI exceeds $200,000 single / $250,000 joint / $125,000 MFS. Real estate professionals with material participation under Treas. Reg. §1.469-9 can re-classify rentals as non-passive and avoid NIIT entirely.

How NIIT Applies to Rental Income

Rental real estate is treated as a passive activity by default under IRC §469, regardless of how much time you spend on it. Net rental income flows into Net Investment Income on Form 8960, then 3.8% NIIT applies to the lesser of total NII or MAGI minus the threshold. A married couple with $320,000 MAGI and $30,000 rental net income pays NIIT on $30,000 (limited by $70,000 excess), so $30,000 × 3.8% = $1,140 owed.

Real Estate Professional Exception (Reg §1.469-9)

The real estate professional status under IRC §469(c)(7) requires (1) more than 750 hours per year in real property trades or businesses and (2) more than 50% of personal services performed in real estate. If qualified AND you materially participate (500+ hours per activity, or aggregate election filed), rentals become non-passive for both §469 and §1411 — net income escapes NIIT. The IRS scrutinizes time logs heavily; keep contemporaneous calendars, mileage logs, and task records.

Form 8960 Reporting and Common Mistakes

NIIT is computed on Form 8960 attached to Form 1040. Common mistakes: (1) forgetting that short-term rentals with average stays of 7 days or less are not "rental" under §469 — they fall under Schedule C if services are provided; (2) failing to file the §1.469-9(g) aggregation election to group all rentals for material participation; (3) treating self-rentals (renting to your own active business) as passive — they're recharacterized as non-passive under §1.469-2(f)(6). Each mistake either creates phantom NIIT or audit risk.

Last updated May 2026. Sources: IRC §1411, Treas. Reg. §1.469-9, Form 8960 instructions.