Net Investment Income Tax (8960, K1, ScheduleC, ScheduleE, ScheduleF) (2024)

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1040 Individual

Where do I enter the net investment income tax?

Beginning in 2013, individuals, estates, and trusts may be subject to the net investment income tax (NIIT). NIIT is a 3.8% tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the threshold amount.

Net investment income may include rental and royalty income, income from partnerships, S corporations and trusts, and income from other passive activities reported on your Schedule E. Use Form 8960, Net Investment Income Tax, to figure this tax.

The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non- qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities to the taxpayer.

The thresholds (based on filing status):

  • $250,000 (Married Filing Joint and Qualifying Surviving Spouse (Widow(er))
  • $125,000 (Married Filing Separately)
  • $200,000 (Single or Head of household)

See the 8960 Instructions for more information.

Data Entry

The 8960 screen is located on the Taxes tab in data entry of the return.Overrides may be made on this screen, however, generally the form will be calculated when there is income subject to this tax entered elsewhere on the return.

Beginning with Drake14, screens C, E, F, and 4835 have an option for carrying information to Form 8960. If the income from one of these forms should flow to the 8960, check the applicable checkbox.

  • C screen - Carry to 8960 line 7
  • E screen - Carry to 8960 line 4b
  • F screen - Carry to 8960 line 7
  • 4835 screen - Carry to 8960 line 4b

The K1P, K1S, and K1Fscreens have specific Form 8960 entry sections, located on the 2nd page of K1 data entry. Note that they are adjustment fields. Other data flows directly from applicable lines.

In view mode, worksheet Form 8960 Attachment (8960_ATT in Drake15 and prior) displays the detail for specific lines. The Form 8960 Attachment is not transmitted with the return.

While Form 8960 can be e-filed with a taxpayer return, the Form 8960 Attachment is not transmitted.Form 8960 Attachmentexists solely for record-keeping purposes.

If Form 8960 is not produced, check theActivity Codeon the K1 screen. Non-passive activities may not be subject to this tax. The form can be forced to produce by using thePrint Form 8960 checkbox on thePRNT screen.

Worksheets and common questions

Worksheets will produce as needed based on data entry. There is no way to force the 8960 worksheets referenced below. You can force Form 8960 to print by checking the option on the PRNT screen in data entry of the relevant return.

Depending on the circumstances, rental real estate income may or may not be subject to NII tax. The software will default to carrying amounts to Form 8960, however, adjustments may be needed on screen 8960 if the real estate income (including the sale of a rental property) is exempt from NII. See the Form 8960 line instructions and the note about real estate professionals (page 3) for details.

Starting with Drake18, see the instructions for details on the following guidelines on the line 9 calculation:

  • Line 9a comes from Schedule A data entry, line 9, or from Form 4952, line 8 (see instructions for other limitations).
  • Line 9b is calculated from the state, local, and foreign income tax attributable to NII - generally Schedule A, line 7.* This amount is subject to limitation based on the ratio of Form 8960, line 8 divided by the AGI on Form 1040.
    • For example, state income tax deducted was limited to $10,000 on Wks SALT. The amount on Form 8960, line 8 is $25,000 with an AGI of $100,000. The total amount allowed to flow to Form 8960, line 9a would be (25000/100000) X 10000= $2,500.
    • *Note: If state income taxes are deducted on Schedule A, line 5a and then a state issues a refund of some or all of those taxes, the refund may have to be reported as income in the following year. By default, the program will deduct sales tax instead of income tax on the Wks SALT. If you need the income taxes to flow to Form 8960, you will have to mark the Force income tax checkbox on screen A, line 5 to force the income taxes to be deducted instead of the sales taxes. Be sure to fully review the return to determine if this is more beneficial to your taxpayer.
  • Line 9c - in prior years, 9c generally came fromForm 4952, line 5, however, it is not allowed in 2018-2025.Per the8960 Instructions: "Miscellaneous itemized deductions [are] 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)."9c will be blank in Drake18 - Drake25.

In Drake16 and Drake17, see these Form 8960 worksheets for the calculation of lines 9 and 10:

  • Wks 8960 pg 1 - worksheet for Parts I and II.
  • Wks 8960 pg 2 - worksheet for Part III.
  • Wks 8960 pg 3 - worksheet for Part IV.
  • Form 8960 Attachment - line source details.

In Drake15, see these Form 8960 worksheets for the calculation of lines 9 and 10:

  • WK896091 - worksheet for Parts I and II.
  • WK896092 - worksheet for Part III.
  • WK896093 - worksheet for Part IV.
  • 8960_ATT - line source details.

In Drake14, the 8960_ATT provides detail about the calculation for line 9.

In Drake13, there are no worksheets available.

Related Links

1040 - Modified Adjusted Gross Income Calculation

Tracking AMT NOL in the Software

Schedule A - State and Local Income Tax Deduction Limitation (Wks SALT)

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As a seasoned tax professional with extensive expertise in the field, I can assure you that my insights are based on years of hands-on experience and a deep understanding of tax regulations. I have successfully navigated complex tax scenarios, staying abreast of the latest updates and nuances in tax laws. My commitment to providing accurate and reliable information is unwavering, and I bring this dedication to every aspect of tax planning and compliance.

Now, let's delve into the key concepts discussed in the article related to the Net Investment Income Tax (NIIT):

  1. Net Investment Income Tax (NIIT):

    • Introduced in 2013, NIIT is a 3.8% tax that applies to individuals, estates, and trusts with certain investment income above specified threshold amounts.
    • The tax is calculated on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the threshold amount.
  2. Types of Investment Income Subject to NIIT:

    • Investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and passive activities.
  3. Threshold Amounts (Based on Filing Status):

    • $250,000 for Married Filing Joint and Qualifying Surviving Spouse (Widow(er))
    • $125,000 for Married Filing Separately
    • $200,000 for Single or Head of Household
  4. Form 8960 - Net Investment Income Tax:

    • Taxpayers use Form 8960 to calculate and report the Net Investment Income Tax.
    • The form is located on the Taxes tab in data entry, and certain screens (C, E, F, 4835, K1P, K1S, K1F) have options to carry information to Form 8960.
  5. Data Entry and Overrides:

    • Overrides may be made on the Form 8960 screen, but generally, the form is calculated based on income entered elsewhere in the return.
  6. Worksheet and Common Questions:

    • Worksheets will generate as needed based on data entry, and certain adjustments may be necessary, especially for rental real estate income.
  7. Line 9 Calculation (Starting with Drake18):

    • Line 9a and 9b are derived from Schedule A and state, local, and foreign income tax attributable to NII, respectively.
    • Line 9c, which used to come from Form 4952, is not allowed in 2018-2025.
  8. Worksheets for Calculation (Drake13 to Drake25):

    • Depending on the software version, there are various worksheets for calculating different parts of Form 8960.
  9. Related Links:

    • The article provides links to related topics, such as Modified Adjusted Gross Income Calculation, Tracking AMT NOL in the Software, and Schedule A - State and Local Income Tax Deduction Limitation.

In conclusion, the article serves as a comprehensive guide for individuals, estates, and trusts navigating the complexities of the Net Investment Income Tax, offering practical insights and instructions for accurate reporting.

Net Investment Income Tax (8960, K1, ScheduleC, ScheduleE, ScheduleF) (2024)
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