Investment
Net Investment Income Tax (NIIT) Planning: How It Saves You $3,000-$20,000 in 2026
The Net Investment Income Tax (NIIT) is a 3.8% surtax on the lesser of your net investment income or the amount by which your MAGI exceeds $200,000 (single) or $250,000 (married filing jointly). Investment income includes capital gains, dividends, interest, rental income, and royalties. Strategic planning can reduce or eliminate this surtax through tax-loss harvesting, retirement account maximization, and real estate professional status (which can convert rental income to non-passive).
Who Qualifies
- MAGI above $200K (single) or $250K (married filing jointly)
- Have investment income (capital gains, dividends, interest, rental income)
Who does NOT qualify
- Income below NIIT thresholds
- No investment income (W-2 only with no investments)
How the Math Works
NIIT applies to the lesser of $80K (net investment income) or $150K (MAGI excess over $250K threshold). Tax: $80K × 3.8% = $3,040.
By harvesting $30K in tax losses, net investment income drops to $50K. New NIIT: $50K × 3.8% = $1,900. Savings: $1,140 on NIIT alone, plus capital gains tax savings.
Legal Basis & IRC Citations
- IRC §1411: Net Investment Income Tax
- IRC §1411(c): Definition of net investment income
- IRC §1411(c)(1)(A)(iii): Rental income inclusion (unless RE professional)
What to Tell Your CPA
“My MAGI is $[amount] and I have $[amount] in net investment income. I'd like to explore strategies to reduce my NIIT exposure, including tax-loss harvesting, maximizing retirement contributions, and whether REP status could reclassify my rental income. Can you model the NIIT impact?”
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Frequently Asked Questions
What income is subject to NIIT?
Capital gains, dividends, interest, rental income (unless you have REP status), royalties, and passive business income. W-2 wages and active business income from S-corps where you materially participate are NOT subject to NIIT.
Can I avoid NIIT entirely?
If your MAGI is below the threshold ($200K single / $250K married), yes. Above that, you can reduce NIIT exposure by maximizing retirement contributions (reduces MAGI), harvesting tax losses (reduces investment income), and qualifying for REP status (converts rental income to non-passive).
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