How is Form 8960 line 9b calculated by TurboTax?

Forum|Forum|6 years ago
June 5, 2019
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TurboTax Deluxe Online

cooterp14

Turbotax is not calculating Form 8960 line 9b correctly. It is picking up schedule A tax deduction which is most likely not attributable to net investment income

harterpk

Turbotax is probably doing the right thing for you. It should deduct the proportion of state tax that decreases investment income, which is based on the ratio of your gross income and investment income. It doesn't seem to do the right thing if you take the standard deduction.

cooterp14

Try updating turbotax. It was doing the same thing for me until I updated.

clayTTax

Please, please, please -- would somebody, preferably from Turbo Tax, provide a clear explanation, with references to the applicable tax law, as to why the $10,000 SALT cap for Schedule A should apply to the state and local income tax deduction for NIIT on Form 8960 Line 9b? I find no clear statement in the IRS instructions that it should.

If the government intends this to be the case with Form 8960, Line 9b, as they clearly do with Schedule A, Line 5e, they should clearly state this on Form 8960, Line 9b. Without such clear instruction, I believe the entry on 8960-Line 9b should come from Schedule A, Line 5a, not Schedule A, Line 5e, but Turbo Tax bases this on Line 5a.

A related question is why there is no SALT deduction allowed if you do not itemize on Schedule A? It is possible that SALT exceeds $10,000 but Schedule A does not exceed the standard deduction.

This NIIT is for net investment income, not gross investment income, the key word being "net". State and local taxes paid reduce the gross investment income to net. Also, by capping this NIIT deduction at $10,000, the NIIT is effectively taxing a paid state and local tax, i.e. double taxation while taxing a portion of the gross investment income, not the net investment income.

ThomasM125

I can't site you the IRS regulation, but it is my understanding that the state tax deduction is limited to $10,000 for the NIIT. That is also the position of TurboTax. The form instructions provided by the IRS are only a summary of the full regulations, which are often subject to interpretation.

You do have the option to override the entry in the desktop version of TurboTax if your research indicates that you can deduct the full amount of state taxes. However, that would invalidate your Turbotax's accuracy guarantee.

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clayTTax

Thank you ThomasM125 for your prompt reply.

I understand what you are saying but the issue I am having is just that, nobody seems able to cite the regulation that backs up the understanding and Turbo Tax position that NIIT is subject to the SALT cap, and it is subject to interpretation. If this understanding is correct, then it is costing Turbo Tax users a bit of coin.

I have the Premiere desk top version and was unable to find this in the Forms to revise it. I will check again.

Thanks again,

Clay

smithellen2

My state taxes ONLY investment income, so my entire state income tax is attributable to investment income. Can I override the defaults in Form 8960 worksheet to show that the entire amount of state income tax should be attributed to investments?

ADDED: I found my answer. I can override by right-clicking and selecting Override in the right-click menu.