Net investment income tax
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Definition
An additional 3.8% tax on certain investment income above statutory MAGI thresholds.
Net investment income tax in plain English
A high-income client sells a rental and is surprised by an extra 3.8 percent on top of the capital gains rate they already modeled. Net investment income tax is that additional tax on certain investment income above statutory MAGI thresholds. Those thresholds are not inflation-indexed, and the top combined federal long-term capital gain rate becomes 23.8% when NIIT applies. After you compute the preferential rate, check whether NIIT still sits on top.
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