Traditional Year-End Strategies (Part 2)

Net Investment Income (NII) Tax
Since 2013, taxpayers with qualifying income are liable for the 3.8% net investment income (NII) tax. The threshold amounts for the NII tax are:
– $250,000 for married filing joint or a surviving spouse
– $125,000 for married filing separate
– $200,000 for all other taxpayers

All net investment income should be monitored for exposure to the NII tax. Net investment income is more than simply capital gains and dividends. It also includes income from a business in which the taxpayer is a passive participant. Rental income may also be considered NII unless earned by a real estate professional.

Taxpayers with potential NII liability should consider keeping income below the $250,000/$125,000/$200,000 thresholds if possible by spreading income over a number of years or offsetting income with both above-the-line and itemized deductions.

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