Author Topic: Net Investment Income Tax  (Read 3365 times)

mrwhizzard

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Net Investment Income Tax
« on: February 14, 2019, 04:21:02 PM »
I'm not sure if this is really the right forum to ask this question, but I figured some of you might also have to fill out Form 8960 (Net Investment Income Tax). My questions are regarding line 9B. The form instructions say that this line should "Include state, local, and foreign income taxes you paid for the tax year that are attributable to net investment income" and that you can use "any reasonable method" to determine that amount.

(1) It seems that most of the tax prep software uses something like "(schedule A line 5A) * (net investment income) / (adjusted gross income)". This doesn't seem reasonable to me because Schedule A line 5A is taxes paid during the tax year, rather than taxes paid for the tax year. For example, 5A could include a large end-of-year payment for 2017 that I paid when filing my taxes in 2018. Or, it could include a very large overpayment of 2018 taxes that will be mostly refunded in 2019.

(2) It is unclear to me from the instructions whether the $10k limit on state and local taxes which applies to itemized deductions also affects from 8960. The 8960 instructions say that line 9B can include "State, local, and foreign income taxes if properly deducted on your return when calculating your U.S. regular income tax" (emphasis mine). This would, in my opinion, tend to limit you to the $10k, since nothing over that amount is deducted on your return.

Any opinions that might shed some light here?

Here's a link to the instructions:
https://www.irs.gov/pub/irs-pdf/i8960.pdf