Question

Net Investment Income Tax

Forum|Forum|1 year ago
February 24, 2025
1 reply
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Q: I sold my financial planning business in 2023 via an installment sale.

-On my 2023 return TT subtracted the installment sale gain on Form 8960's line 5b, thereby not subjecting the gain to the NIIT. However, on my 2024 return ( year 2 of the installment sale), the year's gain was not subtracted on line 5b and thus was subjected to the NIIT.

I am at a loss for understanding why the installment sale gain wasn't subject to the NIIT in 2023 (the year of sale) but was subjected to the NIIT in year 2.

Can anyone clarify this for me?

D

DianeW777

It depends on the income level of the net investment income and your modified adjusted gross income (MAGI). See the amounts based on filing status below.

Individuals: In the case of an individual, the NIIT is 3.8 percent on the lesser of:

the net investment income, or
the excess of modified adjusted gross income over the following threshold amounts:
- $250,000 for married filing jointly or qualifying surviving spouse
- $125,000 for married filing separately
- $200,000 for single or head of household
  - Net Investment Income Tax (NIIT) FAQs
  - What is Form 8960-NIIT?

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T

Tennisbum1Author

Thanks Diane for responding to my question.

My MAGI was well above the $ 250k threshhold in both years.

Any other thoughts would be appreciated. Could it be that the gain isn't subject to the NIIT in the year the sale was made (2023) but its subject to the NIIT in subsequent years?

D

DianeW777

No, it wouldn't be subject to it in one year and not the other unless there was a tax law change. The instructions seem to indicate the the sale of your financial planning business, because it was involved as Section 1411 trade or business is not exempt from the net investment tax credit (NIIT).

Section 1411 trade or business. Generally, a trade or business that's either a passive activity for the taxpayer or is a trade or business of trading in financial instruments or commodities.

Trade or business income subject to net investment income tax (NIIT). Line 4a of Form 8960 was amended to bring attention to certain income reported on Schedule C (Form 1040) and Schedule E (Form 1040) that is subject to NIIT. This change was made to the instructions for Form 8960 in tax year 2022 to better reflect section 1411(c)(2).
- US Code Section 1411

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