Question

net investment income tax form 8960

Forum|Forum|5 years ago
March 27, 2021
3 replies
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This paragraph is in the IRS literature:.

"In order to arrive at Net Investment Income, Gross Investment Income (items described in items 7-11 above) is reduced by deductions that are properly allocable to items of Gross Investment Income. Examples of deductions, a portion of which may be properly allocable to Gross Investment Income, include investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, tax preparation fees, fiduciary expenses (in the case of an estate or trust) and state and local income taxes".

It seems to indicate that you can deduct investment advisory fees and allocate state income taxes to reduce your net investment income tax ( 3.8%). Problem is Turbo tax never asks me any questions regarding this area. Right now I take the standard deduction but include state taxes and advisory fees on schedule A anyway. I don’t know whether it is a turbo tax problem or I am reading it incorrectly. You might be interested yourself also.

A

Anonymous_

Employee

However, the following is also in the Form 8960 instructions (with a caution icon):

Miscellaneous itemized deductions suspended for tax years 2018 through 2025. Miscellaneous itemized deductions under section 67 are not allowed for tax years beginning after 2017 and before 2026. See section 67(g).

See https://www.irs.gov/instructions/i8960#idm139952759606896

Note that investment advisory fees are miscellaneous itemized deductions.

E

EdJ1Author

Hi thanks for getting right back. I see the caution note you mentioned however I don't see anything that elimnates the deduction of allocated state and local income taxes. Am I missing something? thx again

T

tacopa

did you get an answer for this (from anywhere)...deducting state tax against Net Investment Income while taking standard deduction?

L

LRC11

There is a TT oversight regarding form 8960. TT does not reduce your investment income by state and local taxes when calculating the investment surcharge. You can do it manually and in certain situations, it will reduce the surtax you owe.

To enter the state/local investment taxes on form 8960: You'll have to determine the investment portion of your state taxes then switch to TT "forms" mode (there is no interactive screen for this). Right click on line 9b and select source. This will show you the worksheet that feeds into 8960 and show you the specific line in the worksheet you need to complete.

If you have trouble entering the correct data into the worksheet, you can right click and select override, but an override should not be necessary if you adjust the worksheet.

This method works for TT 2020 download premier. Be aware TT does not provide much guidance about 8960 or an interactive screen to correct the worksheet. I recommend reading the IRS regulations or consulting an expert if you are not familiar with the rules around 8960 and how to determine state/local investment taxes. The IRS suggests using any "reasonable method".

V

vogelwk

How about this for a reasonable method: Calculated State Income tax both with and without Investment Income and use the difference as the amount of State Income tax allocatable to Investment Income. The trouble is getting that number into TT without overridding the entry for Form 8960 line 9b. I get an Smart Check Error that say I will not be able to File Electronically. I would think that TT could run the above method algorithmically allowing the error check to work. Also the 'Form 8960 Wks' wasn't any help with this.

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rollsrules

I keep getting my E-file rejected due to form 8960. I have tried deleting the form and it keeps putting it back in. I can't get to the form to "0" it out. Does anyone know how I get to the form?

JohnB5677

This error refers to Form 8960 Net Investment Income Tax Individuals, Estates, and Trusts. The issue is known by the IRS and there is a resolution date of 2/7/2023. Once fixed by the IRS, TurboTax will make their adjustments.

IRS Forms & Instructions revision dates

@rollsrules

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