Is the sale of real estate subject to NIIT? (2024)

Is the sale of real estate subject to NIIT?

The pre-existing statutory exclusion in section 121 exempts the first $250,000 ($500,000 in the case of a married couple) of gain recognized on the sale of a principal residence from gross income for regular income tax purposes and, thus, from the NIIT.

Is sale of real estate subject to NIIT?

What about sales of real estate? Gains from the disposition of property (other than property held in an active trade or business) is subject to NIIT, including gain on the sale of stocks, bonds, mutual funds and real estate.

Does 3.8% tax apply to sale of home?

The parameters described above imply that the only time a home sale may be subject to the tax is if (1) the taxpayer's MAGI exceeds the $200,000/$250,000 threshold, and (2) the taxpayer engages in the sale of a principal residence resulting in a capital gain greater than $250,000 (if single) or $500,000 (if married), ...

At what income does the 3.8 surtax kick in?

A Medicare surtax of 3.8% is charged on the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over a set threshold amount. The threshold is $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all other filers.

How do I avoid 3.8% investment tax?

If your income is high enough to trigger the NIIT, shifting some income investments to tax-exempt bonds could result in less exposure to the tax. Tax-exempt bonds lower your MAGI and avoid the NIIT. Dividend-paying stocks are taxed more heavily as a result of the NIIT.

What is not subject to NIIT tax?

The NIIT applies to income from a trade or business that is (1) a passive activity, as determined under § 469, of the taxpayer; or (2) trading in financial instruments or commodities, as determined under § 475(e)(2). The NIIT doesn't apply to wages, unemployment compensation, or income from a nonpassive business.

Is there a NIIT for capital gains?

All About the Net Investment Income Tax

More specifically, this applies to the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) surpasses the filing status-based thresholds the IRS imposes. The NIIT is set at 3.8% for 2024, as it was for 2023.

What are the exceptions to the NIIT?

Wages, self-employment income, unemployment compensation, business income from nonpassive sources, Social Security benefits, tax-exempt interest, and qualified pension, annuity, and individual retirement account distributions are excluded when calculating the net investment income tax.

Does NIIT apply to depreciation recapture?

While depreciation recapture is taxed purely based on the difference between the tax basis after claimed depreciation, NIIT is taxed on the entire gain of a sale.

How is NIIT tax calculated?

The net investment income tax is a 3.8% surtax that is paid in addition to regular income taxes. But not everyone who makes income from their investments is impacted. It only applies to incomes that are above the thresholds highlighted above.

What income is subject to 3.8 net investment tax?

The NIIT is equal to 3.8% of the net investment income of individuals, estates, and certain trusts. Net investment income includes interest, dividends, annuities, royalties, certain rents, and certain other passive business income not subject to the corporate tax.

Is goodwill subject to NIIT?

Because gain from the sale of personal goodwill is income from a personally developed intangible asset that is not passive income, and, generally, income from personal service activities is not passive, the gain from the sale of personal goodwill should not be subject to the net investment income tax.

Who has to pay the 3.8 Obamacare tax?

The Medicare tax is a 3.8% tax, but it is imposed only on a portion of a taxpayer's income. The tax is paid on the lesser of (1) the taxpayer's net investment income, or (2) the amount the taxpayer's AGI exceeds the applicable AGI threshold ($200,000 or $250,000).

How can I reduce my NIIT tax?

Who pays the 3.8% net investment tax?

As an investor, you may owe an additional 3.8% tax called net investment income tax (NIIT). But you'll only owe it if you have investment income and your modified adjusted gross income (MAGI) goes over a certain amount.

What is the NIIT threshold for 2024?

For individuals, the thresholds are: Single or head of household: $200,000. Married filing jointly: $250,000. Married filing separately: $125,000.

Why are capital losses limited to $3000?

The $3,000 loss limit is the amount that can be offset against ordinary income. Above $3,000 is where things can get complicated.

Is self rental income subject to NIIT?

Consistent with the reclassification, Regs. Sec. 1.1411-4(g)(6) provides that rental income from a self-rental activity is not subject to NIIT, which means that taxpayers enjoy lower marginal tax rates on self-rental income than if it were passive rental income.

How many years can you carryover capital losses?

In general, you can carry capital losses forward indefinitely, either until you use them all up or until they run out. Carryovers of capital losses have no time limit, so you can use them to offset capital gains or as a deduction against ordinary income in subsequent tax years until they are exhausted.

Does NIIT apply to IRA distributions?

This net investment income tax also applies to certain trusts and estates. It does not apply to corporations and other “active” businesses. It does not apply to trusts associated with IRAs or pension plans.

What is the NIIT threshold amount for single taxpayers?

Are Roth conversions subject to NIIT?

Although distributions from a traditional IRA aren't subject to NIIT, they do increase your modified adjusted gross income, which can trigger or increase the NIIT. This is true for the conversion to a Roth IRA. Distributions from Roth IRAs are excluded from gross income, so they aren't subject to NIIT.

Is sale of business assets subject to NIIT?

In sum, the expanded NIIT would impose a new 3.8% tax on (1) most income allocated to an S corporation shareholder and (2) gain from the sale of the interests in, or the assets of, any private business taxed as an S corporation or a partnership (all effective January 1, 2022) provided the owners exceed the adjusted ...

Are short term capital gains subject to NIIT?

Yes NIIT includes capital gain regardless of duration (but not the excluded amount on sale of your home), and no Additional Medicare Tax (like normal FICA/SECA) does not include any investment income.

Is sale of second home subject to NIIT?

If the home is a nonprincipal residence (a vacation home, for example) or you don't meet the two-year requirement, the entire gain will be subject to capital gains taxes and, depending on your MAGI, NIIT.