Finance Maxxing
Capital Gains & Investments
Net Investment Income Tax (NIIT)
3.8% surtax on investment income for high earners.
The NIIT is a 3.8% surtax introduced by the Affordable Care Act, applying to the lesser of:
- Net investment income, OR
- MAGI exceeding the threshold
NIIT Thresholds
| Filing Status | Threshold |
|---|---|
| Single / HOH | $200,000 |
| Married Filing Jointly | $250,000 |
| Married Filing Separately | $125,000 |
What Counts as Net Investment Income
| Included | Excluded |
|---|---|
| Interest income | Wages and salary |
| Dividends | Social Security |
| Capital gains (LTCG + STCG) | Municipal bond interest |
| Rental income | Self-employment income |
| Royalties | 401(k)/IRA distributions |
| Passive business income | — |
Calculation Example
Single filer: $180,000 salary + $50,000 LTCG = $230,000 MAGI
MAGI above threshold: $230,000 − $200,000 = $30,000
Net investment income: $50,000
NIIT base = lesser of $30,000 and $50,000 = $30,000
NIIT = $30,000 × 3.8% = $1,140
Key insight: Municipal bond interest is exempt from NIIT, making munis even more valuable for high earners.
Sources
More in Capital Gains & Investments
Long-Term Capital Gains (LTCG)
Gains on assets held over one year, taxed at preferential rates.
Short-Term Capital Gains (STCG)
Gains on assets held one year or less, taxed as ordinary income.
Holding Period
How long you held an asset — determines LTCG vs. STCG.
Cost Basis
Original purchase price used to calculate gain or loss.
Capital Loss Deduction
Losses offset gains; up to $3,000/yr against ordinary income.
Tax-Loss Harvesting
Selling investments at a loss to offset gains.
Wash Sale Rule
Disallows loss if you repurchase same security within 30 days.
Qualified Dividends
Dividends taxed at LTCG rates instead of ordinary rates.
Stepped-Up Basis
Inherited assets reset cost basis to date-of-death value.