Ask a CPA

In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities to the taxpayer.
To calculate your Net Investment Income, your investment income is reduced by certain expenses properly allocable to the income

Wages, unemployment compensation; operating income from a nonpassive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income and distributions from certain Qualified Plans.

To the extent that gains are not otherwise offset by capital losses, the following gains are common examples of items taken into account in computing Net Investment Income:
1.Gains from the sale of stocks, bonds, and mutual funds.
2.Capital gain distributions from mutual funds.
3.Gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence).
Gains from the sale of interests in partnerships and S corporations (to the extent you were a passive owner).

The Net Investment Income Tax will not apply to any amount of gain that is excluded from gross income for regular income tax purposes.
The pre-existing statutory exclusion in IRC 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.

In order to arrive at Net Investment Income, Gross Investment Income is reduced by deductions that are properly allocable to items of Gross Investment Income.
Examples of properly allocable deductions include investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, and state and local income taxes properly allocable to items included in Net Investment Income.

For individuals, the tax will be reported on, and paid with Form 8960 and on Form 1040.
For Estates and Trusts, the tax will be reported on, and paid with, the Form 1041.

No, but you may request that additional income tax be withheld from your wages.

You may be subject to both taxes, but not on the same type of income. The 0.9% Additional Medicare Tax applies to individuals’ wages, compensation and self-employment income over certain thresholds, but it does not apply to income items included in Net Investment Income

Additional Medicare Tax applies to wages and compensation above a threshold amount received after December 31, 2012 and to self-employment income above a threshold amount received in taxable years beginning after December 31, 2012.

Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:
Married Filing Jointly $250,000
Single, Head of Household or Qualifying Widower $200,000
Married Filing Separately $125,000