A Few Words



Investment income is considered anything you earn passively, from a source for which you did not actively work. Typically, this income is earned from an investment, although only the amount that exceeds the expenses or capital losses associated with the investment counts. Examples of investment income include:

  • Dividends from stocks, bonds or mutual funds
  • Realized gains from selling these financial instruments
  • Interest payments from loans
  • Capital gains from investment property sales — or any property that’s not your primary residence
  • Profits from selling a business, if you were a passive shareholder
  • Rental income
  • The interest from non-qualified annuities
  • Royalty income

The tax on your net investment income only applies to that portion of the income that exceeds specific thresholds for individuals or couples.
The net investment income tax, also known as NIIT, doesn’t include all of your income. For example, the following income sources don’t count toward your net investment income:

  • Your wages from an employer
  • Your self-employment income
  • The operating income from a business in which you’re an active member — that is, it’s not passive income
  • Any unemployment compensation
  • Your Social Security benefits
  • Any alimony payments you’ve received
  • Any tax-exempt interest income, such as from a municipal bond


Put into effect in 2013, the net investment income tax is set at 3.8 percent. Keep in mind that this is net income, so you always get to subtract your expenses, fees and taxes already paid to arrive at the net sum. It only applies to individuals, trusts and estates. This is not a business tax.

For high net-worth individuals like you, your net investment income — less expenses — is taxable, if it exceeds certain income thresholds. Although the thresholds are subject to change and these figures haven’t been indexed for inflation, the IRS has published the thresholds for the net investment income tax as:

  • $250,000 for married couples who file together
  • $250,000 for a widow or widower with a dependent child — so long as it’s within two years since the spouse’s passing
  • $200,000 for a single individual
  • $200,000 for the head of a household who keeps a home for a “qualifying person,” usually a child, a parent or another qualifying relative
  • $125,000 for each half of married couples who file separately


As a general guideline, if you gain any income from a passive investment and your adjusted income exceeds the threshold, you are taxed 3.8 percent on it. If you need help figuring out your tax burden, talk to a good NYC tax accountant to prepare your return. Since the tax code can be complex, especially regarding this relatively new tax, you can’t be expected to know the ins and outs as well as a professional tax accountant.

Our firm is an experienced tax accounting firm in Manhattan and the NYC metropolitan area. Their CPAs have answers if you have questions about the NIIT. If you have time to plan your taxes, your personal accountant may suggest conducting a tax audit defense in advance of your tax returns.


If you expect to earn investment income in the next year, especially if it’s a considerable sum, it pays to keep watch over your potential tax burden. A sudden bump in investment earnings can have significant tax implications. So instead of being shocked when your tax accountant prepares your return, asking for a pre-emptive tax audit brings to the fore any tax issues well before you need to submit the forms to the IRS.

With an accountant in NYC you can trust, you can have your taxes monitored year-round. The top CPAs at our firm take a big-picture view of your finances. They review your personal and professional taxes, with an eye toward making your wealth work for you. The net investment income tax is simply one more item on the list to track when your New York CPA has your best interests in mind.

  1. If you’re married and filing jointly, your threshold is $250,000. Let’s say you earn a combined $200,000 from your respective jobs, and you earned an additional $30,000 from a rental property after expenses, as well as $10,000 from capital gains and dividends from your stock portfolio. Your total income is $240,000, which means you’d pay no net investment income taxes because you didn’t reach the threshold.
  2.  On the other hand, if you’re single, your threshold is $200,000. If you earned $175,000 from your job, that same $30,000 net gain from your rental property and $10,000 from the capital gains, your total income is $215,000, which exceeds the threshold. Your net investment income tax equals 3.8 percent of either $40,000 (your net investment income) or $15,000 (how much you exceeded the threshold), whichever is less. So your tax burden is $570 (3.8 percent of $15,000).
  3. If you’re married, filing jointly, and have lived in the same home for five years, and if you sell your home for $1.5 million, making $600,000 on the sale, you get an immediate $500,000 deduction on your taxes. That means you have to pay capital gains tax only on $100,000. If you also net $150,000 of other Investment Income that same year, you have a total net investment income of $250,000. If you have any earned income, you have to pay NIIT on whatever amount is over your threshold (up to that $250,000). If your total income, including your net investment income, is $300,000, you only owe $1,900 (3.8 percent of $50,000). If your total income is $2 million, you owe $9,500 (3.8 percent of all $250,000). These amounts are over and above whatever normal income taxes you pay.


The NIIT requires some planning because it can affect other taxes. Get accounting assistance from your personal CPA. If you expect to earn a significant sum in passive income and your active income approaches or already surpasses the net investment income threshold, talk to your Manhattan CPA. Implications of the NIIT can include:

* If you pay quarterly estimated taxes, you may need to adjust the amount you pay to avoid penalties. Talk to your small business accountant.
* If you normally take tax credits, things get murky in relation to NIIT. Discuss it with your personal accountant; don’t assume your tax credits will help offset the NIIT.

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