フォーム 8960 指示
フォームの手順 8960, ネット投資所得税「個人、不動産、信託」
2018年11月12日
関連フォーム
- フォーム 8960 - ネット投資所得税「個人・不動産・信託」
Department of the Treasury
Internal Revenue Service
2023
Instructions for Form 8960
Net Investment Income Tax—Individuals, Estates, and Trusts
Section references are to the Internal Revenue Code unless
otherwise noted.
Gross income and net gain specifically excluded by section
•
1411, related regulations, or other guidance published in the
Internal Revenue Bulletin.
Examples of excluded items are:
Future Developments
For the latest information about developments related to Form
8960 and its instructions, such as legislation enacted after they
Wages,
•
•
•
•
•
•
•
Unemployment compensation,
Alaska Permanent Fund Dividends,
Alimony,
Social security benefits,
Tax-exempt interest income,
Income from certain qualified retirement plan distributions,
General Instructions
Reminders
and
Income subject to self-employment taxes.
•
Charitable contribution deduction for electing small busi-
ness trusts (ESBTs). Line 18b of Form 8960 was updated to
reflect changes outlined in P. L. 115-97, section 13542, that
amended the way the S portion of an ESBT accounts for
charitable contribution deductions under section 170(b) instead
of section 641(c), effective January 1, 2018. See Line 18b
Net investment income. Generally, net investment income
includes gross income from interest, dividends, annuities,
royalties, and rents, unless they’re derived from the ordinary
course of a trade or business that isn’t (a) a passive activity, or
(b) a trade or business of trading in financial instruments or
commodities. In addition, net investment income includes other
gross income derived from a trade or business that’s (a) a
passive activity, or (b) a trade or business of trading in financial
instruments or commodities. Additionally, net investment income
includes net gain (to the extent taken into account in computing
taxable income) attributable to the disposition of property other
than property held in a trade or business that’s not (a) a passive
activity, or (b) a trade or business of trading in financial
instruments or commodities. To arrive at net investment income,
the above items are reduced by deductions allowed against the
income tax that are properly allocable to those items of gross
income or net gain. See section 1411(c) and Regulations
sections 1.1411-4 and 1.1411-10(c).
Trade or business income subject to net investment in-
come tax (NIIT). Line 4a of Form 8960 was amended to bring
attention to certain income reported on Schedule C (Form 1040)
and Schedule E (Form 1040) that is subject to NIIT. This change
was made to the instructions for Form 8960 in tax year 2022 to
better reflect section 1411(c)(2).
These instructions are based mostly on Regulations sections
1.1411-1 through 1.1411-10.
Who Must File
Attach Form 8960 to your return if your modified adjusted gross
income (MAGI) is greater than the applicable threshold amount.
Passive foreign investment company (PFIC). Generally, a
PFIC is any foreign corporation if at least 75% of its gross
income is passive income or an average of at least 50% of its
assets produce passive income or are held for the production of
passive income. See section 1297(a).
Purpose of Form
Use Form 8960 to figure the amount of your Net Investment
Income Tax (NIIT).
Qualified electing fund (QEF). Generally, a QEF is a PFIC for
which the taxpayer has made an election under section 1295(b)
and the PFIC complies with IRS requirements for determining
ordinary earnings and net capital gain. See section 1295(a).
Definitions
Controlled foreign corporation (CFC). Generally, a CFC is
any foreign corporation if more than 50% of its voting power or
stock value is owned or considered owned by U.S. shareholders
(as defined in section 951(b)) on any day during the tax year.
Certain foreign insurance companies are considered CFCs if
more than 25% of their voting power or stock value is owned or
considered owned by U.S. shareholders (as defined in section
951(b)) on any day during the tax year. See section 957(a) and
(b). Additionally, certain foreign insurance companies with
related person insurance income may be CFCs. See section
953(c). A specified foreign corporation described in section
965(e)(1)(B) and Regulations section 1.965-1(f)(45)(i)(B) that is
not otherwise a CFC is treated as a CFC for purposes of
Regulations section 1.1411-10. See Regulations section
1.965-1(d).
Section 1.1411-10(g) election. An election made under
Regulations section 1.1411-10(g) (section 1.1411-10(g)
Section 1411 trade or business. Generally, a trade or
business that’s either a passive activity for the taxpayer or is a
trade or business of trading in financial instruments or
commodities. See section 1411(c)(2) and Regulations section
1.1411-5(a).
Recordkeeping
For the NIIT, certain items of investment income and investment
expense receive different treatment than for the regular income
tax. Therefore, you need to keep all records and worksheets for
the items you need to include on Form 8960. Keep all records for
the entire life of the investment to show how you calculated
basis. You’ll need to know what you did in prior years if the
investment was part of a carryback or carryforward.
Excluded income. Excluded income means:
Income excluded from gross income in chapter 1 of the
•
Internal Revenue Code;
Income not included in net investment income; and
•
Dec 8, 2023
Cat. No. 53783S
check the appropriate checkbox near the top of Form 8960, Part
I.
Application to Individuals
U.S. citizens and residents. Individuals who have for the tax
year (a) MAGI that’s over an applicable threshold amount, and
(b) net investment income, must pay 3.8% of the smaller of (a) or
(b) as their NIIT.
Once you make either election, its duration and termination
are governed by sections 6013(g) and 6013(h), respectively, and
related regulations.
The applicable threshold amount is based on your filing
You can make either election on an amended return only if the
tax year for which you’re making the election, and all tax years
affected by the election, aren’t closed by the period of limitations
on assessment under section 6501.
status.
Married Filing Jointly or Qualifying Surviving Spouse is
•
$250,000.
Married Filing Separately is $125,000.
•
Single or Head of Household is $200,000.
•
If you elect to apply a section 6013(g) election for NIIT
purposes and later determine that you didn’t meet the criteria for
doing so in that tax year, your election for NIIT purposes will have
no effect that year and for all future years. However, if, in a later
year, you meet the criteria to elect to apply your section 6013(g)
election for NIIT purposes, you’ll be treated as though you did
elect to apply your section 6013(g) election in that later year
unless you file (or amend) your return for that later year to report
your NIIT without the election for NIIT purposes.
Nonresidents. The NIIT doesn’t apply to nonresident alien
(NRA) individuals. If you’re a U.S. citizen or resident married to
an NRA, your filing status will be married filing separately for
purposes of determining your MAGI, net investment income, and
whether you’re subject to the NIIT. However, see information,
later, about certain elections to file jointly with NRA spouses.
Dual-resident individual. If you’re a dual-resident individual,
within the meaning of Regulations section 301.7701(b)-7(a)(1),
you’ll generally be treated as a U.S. resident for purposes of the
NIIT. However, you’ll be treated as an NRA for purposes of the
NIIT if:
Application to Estates and Trusts
Domestic estates and trusts. The NIIT applies to estates and
trusts that have undistributed net investment income and
adjusted gross income (AGI) in excess of the threshold amount.
The NIIT is 3.8% of the lesser of:
You determine you would be treated as a resident of a foreign
•
country for purposes of an income tax treaty between the United
States and that foreign country;
The undistributed net investment income for the tax year; or
The excess, if any, of AGI (as defined in section 67(e)) over
•
You elect to be treated as a resident of the foreign country for
•
•
purposes of computing your U.S. income tax liability; and
the applicable threshold amount.
You file Form 1040-NR, U.S. Nonresident Alien Income Tax
•
Return, and Form 8833, Treaty-Based Return Position
Disclosure Under Section 6114 or 7701(b), as provided in
Regulations section 301.7701(b)-7(b).
The applicable threshold amount is the dollar amount at
which the highest tax bracket in section 1(e) begins for the tax
year. See the instructions for Form 1041, Schedule G, line 1a,
and the instructions for Form 1041-QFT, line 12, for the dollar
amount at which the highest tax bracket begins for the tax year.
Dual-status individual. If you were a dual-status
individual—that is, an individual who was a resident of the United
States for part of the year and an NRA for the other part of the
year—you’re subject to the NIIT only for the portion of the year
you were a U.S. resident. The relevant threshold amount isn’t
reduced or prorated for a dual-status individual.
Exception for certain domestic trusts. The following trusts
aren’t subject to the NIIT.
Trusts that are exempt from income taxes imposed by subtitle
•
A of the Internal Revenue Code.
If you were a U.S. resident on the last day of the tax year, file
Form 1040 or 1040-SR and attach a statement showing your
income for the part of the year you were a nonresident. You can
use Form 1040-NR as the statement.
If you were a nonresident on the last day of the tax year, file
Form 1040-NR and attach a statement showing your income for
the part of the year you were a U.S. resident. You can use Form
1040 or 1040-SR as the statement.
1. Charitable trusts and qualified retirement plan trusts
exempt from tax under section 501.
2. Charitable Remainder Trusts exempt from tax under
section 664.
A trust or decedent's estate in which all of the unexpired
•
interests are devoted to one or more of the purposes described
in section 170(c)(2)(B).
Trusts that are classified as “grantor trusts” under sections
•
671–679.
For more information, see the Instructions for Form 1040-NR
Electing Alaska Native Settlement Funds (described in
•
and Pub. 519, U.S. Tax Guide for Aliens.
section 646).
Perpetual Care (Cemetery) Trusts (described in section
•
Election To File Jointly With Nonresident
Spouse—Section 6013(g) or 6013(h)
642(i)).
Trusts that aren’t classified as “trusts” for federal income tax
•
If you and your spouse elect to file a joint return under section:
purposes. For example:
6013(g) (where an NRA is married to a U.S. citizen or resident
•
1. Real estate investment trusts, and
2. Common trust funds.
at the end of the tax year); or
6013(h) (where at least one spouse was an NRA at the
•
beginning of the tax year, but is a U.S. citizen or resident married
to a U.S. citizen or resident at the end of the tax year),
Special computational rules for qualified funeral trusts
(QFTs). The NIIT applies to the QFT (as defined in section 685)
by treating each beneficiary's interest in that beneficiary's
contract as a separate trust. Complete one consolidated Form
8960 for all beneficiary contracts subject to NIIT.
you can also elect to apply the joint return election for NIIT
purposes. If you made a section 6013(g) or 6013(h) election, but
don’t elect to apply the joint return election for NIIT purposes,
then, for NIIT purposes, you’ll file as married filing separately.
If a QFT has one or more beneficiary contracts that have net
To make either election for NIIT purposes, use your combined
items of income, gain, loss, and deduction from your joint return
to figure your net investment income and MAGI; use the married
filing jointly return applicable threshold amount ($250,000); and
investment income in excess of the threshold amount:
Complete Form 8960, lines 1–12, using only the sum of the
•
net investment income of the beneficiary contracts that have net
investment income in excess of the threshold amount; and
On line 19b:
•
-2-
Instructions for Form 8960 (2023)
1. Insert the number of beneficiary contracts that have net
investment income in excess of the threshold amount next to the
entry on the line, and
2. Multiply the number of beneficiary contracts that have net
investment income in excess of the threshold amount by the
threshold amount for the year and enter that amount on line 19b.
Note. The NIIT doesn’t apply directly to foreign estates or
foreign trusts.
Passive Activity
General Rules
Net investment income generally includes income and gain from
passive activities. A passive activity for purposes of net
investment income has the same meaning as under section 469.
A passive activity includes any trade or business in which you
don’t materially participate. A passive activity also includes any
rental activity, regardless of whether you materially participate.
There are limited exceptions for rentals. See the discussion on
rentals, later. For more details on passive activities, see the
Instructions for Form 8582, Passive Activity Loss Limitations, and
Pub. 925, Passive Activity and At-Risk Rules.
Example. For 2023, a QFT has a beneficiary contract with
$16,000 of interest income and another beneficiary contract with
$21,000 of dividend income. Neither contract has any properly
allocable deductions. The threshold amount for the 2023 tax
year is $14,450. Therefore, the QFT has two beneficiary
contracts with net investment income in excess of the threshold
amount for the year.
The QFT will report $16,000 on line 1 (interest) and $21,000
on line 2 (dividends). Lines 12, 18a, and 19 would each be
$37,000 ($16,000 plus $21,000). Enter “2” on the dotted line at
the end of line 19b and enter $28,900 ($14,450 × 2) on the entry
line for 19b. Lines 19c and 20 will be $8,100 ($37,000 less
$28,900). On line 21, enter the NIIT liability of $307.80 ($8,100 ×
3.8% (0.038)).
Trade or Business Activities
The definition of trade or business for NIIT purposes is limited to
a trade or business within the meaning of section 162. This is
more restrictive than the definition of a trade or business activity
for purposes of the passive activity loss rules. For example,
under the passive activity loss rules, a trade or business includes
any activity conducted in anticipation of the commencement of a
trade or business and any activity involving research or
Special computational rules for electing small business
trusts (ESBTs). The NIIT has special computational rules for
ESBTs. In general, ESBTs compute their NIIT in 3 steps.
1. The ESBT separately calculates the undistributed net
investment income of the S portion and non-S portion according
to the general rules for trusts under chapter 1 of the Code, and
then combines the undistributed net investment income of the S
portion and the non-S portion. In the case of an ESBT that has
an S portion and a non-S portion, complete lines 1–11 of Form
8960 using the items from the non-S portion, and add
undistributed net investment income of the S portion to net
investment income on line 7.
2. The ESBT determines its AGI, solely for purposes of NIIT,
by adding the net income or net loss from the S portion to the
AGI of the non-S portion as a single item of income or loss. See
the instructions for line 19a for more information.
experimentation. In some cases, income from activities that
aren’t passive activities under section 469 will be included in net
investment income because the activity doesn’t rise to the level
of a trade or business within the meaning of section 162. The
activity must be a trade or business within the meaning of
section 162 and be nonpassive for purposes of section 469
before the income is excluded from the NIIT. If you own an
interest in a pass-through entity, the determination of whether
that’s a trade or business is made at that entity's level.
Real Estate Professionals
If you’re a real estate professional for purposes of section 469(c)
(7), your rental income or loss won’t be passive if you materially
participated in the rental real estate activity with certain
3. To determine whether the ESBT is subject to NIIT, the
ESBT compares the combined undistributed net investment
income with the excess of its AGI over the section 1(e) threshold.
However, your rental income is included in net investment
income if the income isn’t derived in the ordinary course of a
trade or business. Qualifying as a real estate professional
doesn’t necessarily mean you’re engaged in a trade or business
with respect to the rental real estate activities. If your rental real
estate activity isn’t a section 162 trade or business or you don’t
materially participate in the rental real estate activities, the rental
income will be included in NIIT.
For an ESBT with only S corporation income (no non-S
portion), complete Form 8960 using the items from the S
portion. For ESBTs with an S portion and a non-S
TIP
portion, use Form 8960 as a worksheet for calculating the
amounts to enter on line 7 and line 19a. On the S portion's Form
8960 worksheet, enter the S portion's net investment income on
line 7 of the trust's Form 8960 and combine line 19a of the Form
8960 worksheet with the non-S portion's AGI to arrive at the
amount on line 19a.
For additional information on real estate professionals, see
section 469(c)(7) and Pub. 925.
See Regulations section 1.1411-3(c) for more details and
examples.
Safe Harbor for Real Estate Professionals
Special computational rules for bankruptcy estates of an
individual. A bankruptcy estate of an individual debtor is
treated as an individual for purposes of the NIIT. Regardless of
the actual marital status of the debtor, the applicable threshold
for purposes of determining the NIIT is the amount applicable for
a married person filing separately.
You qualify for the safe harbor if you’re a real estate professional
for purposes of section 469 and you:
Participate in each rental real estate activity for more than 500
•
hours during the tax year, or
Participated in a rental real estate activity for more than 500
•
hours in any 5 tax years (whether or not consecutive) during the
10 tax years immediately prior to this tax year.
Distributions from foreign estates and foreign trusts. If
you’re a U.S. person who receives a distribution of income from a
foreign estate or foreign trust, you must generally include the
distribution in your net investment income calculation to the
extent that the income is included in your AGI for regular income
tax purposes. However, you don’t need to include any
distributions of accumulated income that you receive from a
foreign trust.
If you qualify, your gross rental income from your rental real
estate activity is treated as though derived in the ordinary course
of a trade or business and isn’t included in your net investment
income. If you qualify in the year you dispose of the property
used in the rental real estate activity, the amount of gain or loss
from the disposition is also deemed to be derived from property
used in the ordinary course of a trade or business and isn’t
included in your net investment income.
-3-
Instructions for Form 8960 (2023)
Note. For real estate professionals with a Regulations section
1.469-9(g) election in effect, all of your rental real estate
activities constitute a single activity for purposes of applying the
500-hour test described in Safe Harbor for Real Estate
Professionals above.
income (before taking into account any suspended losses). Any
suspended passive losses that are allowed by reason of section
469(g) are allowed as additional properly allocable deductions.
Economic Grouping
You can treat one or more trade or business activities, or rental
activities, as a single activity if those activities form an
appropriate economic unit for measuring gain or loss under the
passive activity loss rules. For additional information on passive
activity grouping rules, see Pub. 925.
Note. If you're a real estate professional under section 469(c)
(7), but you’re unable to satisfy the qualifications for the safe
harbor, you’re not precluded from establishing that the gross
income and gain or loss from the disposition of property
associated with your rental real estate activity isn’t included in
net investment income.
Regrouping rules. The passive activity grouping rules
determine the scope of your trade or business and whether that
trade or business is a passive activity for purposes of the NIIT.
The proper grouping of a rental activity with a trade or business
activity won’t generally convert any gross income from rents into
gross income derived from a trade or business.
Generally, you may not regroup activities unless your
grouping was clearly inappropriate when originally made, or has
become clearly inappropriate because of changed facts and
circumstances.
However, under the NIIT “fresh start” election, you may
regroup for the first tax year you’re subject to the NIIT (without
the effect of the regrouping). You may regroup only once under
this election and that regrouping will apply to the tax year for
which you regroup and all future tax years. If you’re subject to the
NIIT for 2013 and you don’t regroup, you may make the election
for the first tax year beginning after 2013 that you’re subject to
the NIIT.
You may regroup on an amended return, but only if you
weren’t subject to the NIIT on your original return (or previously
amended return), and if, because of a change to the original
return, you owe NIIT for the year. For additional rules regarding
regrouping on amended returns, see Regulations section
1.469-11(b)(3)(iv)(C).
Special Rules for Certain Rental Income
For income tax purposes, Regulations section 1.469-2(f)(6)
generally recharacterizes what would otherwise be passive
rental income from a taxpayer's property as nonpassive where
the taxpayer rents the property for use in a trade or business in
which the taxpayer materially participates. Similarly, for income
tax purposes, a rental activity that’s properly grouped with a
trade or business activity in which the taxpayer materially
participates under Regulations section 1.469-4(d)(1) is a
nonpassive activity. For purposes of calculating your net
investment income, the gross rental income in both of these
situations is treated as though it’s derived in the ordinary course
of a trade or business. Further, upon the disposition of the assets
associated with the rental activity, any gain or loss is also treated
as gain or loss attributable to the disposition of property held in a
nonpassive trade or business and not included in your net
investment income. For these purposes, the nonpassive trade or
business can’t be a business trading in financial instruments or
commodities.
Treatment of Former Passive Activities
A former passive activity is any activity that was a passive activity
in a prior tax year but isn’t a passive activity in the current year. A
prior tax year's unallowed loss from a former passive activity is
allowed to the extent of current year income from the activity
under section 469(f)(1)(A). For purposes of determining your net
investment income, suspended losses from former passive
activities are allowed as a properly allocable deduction, but only
to the extent the net income or net gain from the former passive
activity is included in your net investment income. Any remaining
suspended losses from the former passive activity are allowed
as a properly allocable deduction, but only to the extent the net
income or net gain from other passive activities is included in
your net investment income. For more information, see
Disclosure requirements. Regroupings under the NIIT “fresh
start” are subject to the disclosure requirements of Rev. Proc.
2010-13.
Disposition of Partnership Interest or
S Corporation Stock
In general, an interest in a partnership or S corporation isn’t
property held for use in a trade or business and, therefore, gain
or loss from the sale of a partnership interest or S corporation
stock is included in your net investment income.
Regulations section 1.1411-4(g)(8) and examples.
Adjustment
The amount of the gain or loss from the disposition for regular
income tax purposes is included on Form 8960, line 5a, as a
gain or loss. If you materially participated (as defined under the
passive activity loss rules) in a trade or business activity of the
partnership or S corporation (or one of its subsidiaries) and that
trade or business activity isn’t the trade or business of trading in
financial instruments or securities, then you must calculate the
adjustment to report on line 5c. The adjustment described below
only applies to dispositions of equity interests in partnerships
and stock in S corporations and doesn’t apply to gain or loss
recognized on, for example, indebtedness owed to the taxpayer
by a partnership or S corporation.
Disposition of Entire Interest
If you disposed of your entire interest in a passive activity or a
former passive activity to an unrelated person in a fully taxable
transaction, your losses allocable to the activity for that year
aren’t limited by the passive activity loss rules for income tax
purposes. A fully taxable transaction is a transaction in which
you recognize all realized gain or loss. For purposes of
calculating your net investment income, these losses may be
properly allocable deductions, depending on the underlying
character and origin of the losses.
Note. If you dispose of an activity that’s always been a passive
activity, the suspended passive losses from that activity are
allowed in full as a properly allocable deduction.
For more information on how to calculate the adjustment to
report on line 5c, see Proposed Regulations section 1.1411-7.
Note. If you dispose of an activity that’s a former passive
activity, any suspended passive losses allowed in the year of
disposition by reason of section 469(f)(1)(A) are included as
properly allocable deductions, but only to the extent the gain on
the disposition of the activity is included in net investment
Note. If the tax basis of the interest in the partnership or S
corporation for NIIT purposes is different than for regular income
tax purposes due to certain adjustments associated with income
from CFCs or QEFs, the amount of gain or loss may exceed the
amount reported for regular income tax purposes.
-4-
Instructions for Form 8960 (2023)
Example. If, in 2023, a single individual acquires stock in a
QEF, has a QEF inclusion of $5,000, and has MAGI of $150,000,
the individual wouldn’t have to make a section 1.1411-10(g)
election for 2023 because section 1411 isn’t applicable. If, in
2024, the individual has MAGI in excess of $200,000, and the
individual would like to take QEF inclusions into account for
purposes of section 1411 in the same manner and in the same
tax year as those amounts are taken into account for Code
chapter 1 purposes, the individual must make the section
1.1411-10(g) election for 2024 in the time and manner described
in Regulations section 1.1411-10(g).
Required statements. Attach a statement to your return for the
year of disposition. Your statement must include:
The name and taxpayer identification number of the
•
partnership or S corporation of which the interest was
transferred,
The amount of the transferor's gain or loss on the disposition
•
of the interest for regular income tax purposes included on
line 5a,
The information provided by the partnership or S corporation
•
to the transferor relating to the disposition (if any), and
The amount of adjustment to gain or loss due to basis
•
adjustments attributable to ownership in certain CFCs and
QEFs.
Content requirements of election. If you’re making or made
the election in a prior year, you must check the checkbox for
“Regulations section 1.1411-10(g) election” on the Form 8960
filed with your original or amended return. In addition, you must
attach a statement to your return, which includes the following.
Deferred recognition sales (installment sales and private
annuities). If you disposed of a partnership interest or S
corporation stock in an installment sale transaction to which
section 453 applies, you need to calculate your adjustment to net
gain in the year of the disposition, even if the disposition
occurred prior to 2013. The difference between the amount
reported for regular income tax and NIIT will be taken into
account when each payment is received. You must attach the
statement described above to your return in the first year you’re
subject to NIIT. In subsequent years, attach a statement to your
return that provides “Adjustment relates to a deferred recognition
sale first reported on line 5c of the (enter year) return.”
Your name and social security number (individuals) or
•
employer identification number (EIN) (estates and trusts).
The following information for each CFC or QEF for which an
•
election is made.
1. The name of the CFC or QEF.
2. Either the EIN of the CFC or QEF, or, if the CFC or QEF
doesn’t have an EIN, the reference ID number of the CFC or
QEF.
In addition, list separately each CFC or QEF for which an
election is being made for the first time with this return and
include on the statement a declaration that you elect under
Regulations section 1.1411-10(g) to apply the rules in section
1.1411-10(g).
Regulations Section 1.1411-10(g)
Election
In general, you may make the election provided in Regulations
section 1.1411-10(g) if you own stock of a CFC or QEF. If a
section 1.1411-10(g) election is in effect for stock of a CFC or
QEF, generally, the amounts you include in income for regular
income tax purposes under sections 951, 951A, and 1293 from
the stock of the CFC or QEF are included in net investment
income, and distributions from the stock of the CFC or QEF,
described in section 959(d) or 1293(c), are excluded from net
investment income.
Special Rule for Traders in Financial
Instruments or Commodities
Gains and losses from your trade or business of trading in
financial instruments or commodities aren’t subject to
self-employment taxes. However, interest expense and other
investment expenses are deducted by a trader on Schedule C
(Form 1040), Profit or Loss From Business, if the expenses are
from the trading business. A special rule may apply to a trader in
financial instruments or commodities to reduce net investment
income. The trader's interest and other investment expenses, to
the extent the expenses aren’t used to reduce the trader's
self-employment income, may be deductible for NIIT.
Your election applies only to the specific stock of the CFC or
QEF for which it’s made and stock of the CFC or QEF that you
subsequently acquire. If you own a CFC or QEF through certain
domestic pass-through entities, such as a domestic partnership,
the entity may make the election for the stock of the CFC or QEF
and you’ll be considered as having made the election with
respect to the stock of the CFC or QEF owned or subsequently
acquired by the pass-through entity. The election by the
pass-through entity applies only to stock of the CFC or QEF held
or subsequently acquired directly or indirectly by the
Specific Instructions
Part I—Investment Income
Elections for Investment Income
If you’re making the section 6013(g) or 6013(h) election (see
6013(g) or 6013(h), earlier), check the corresponding checkbox.
pass-through entity. The pass-through entity's election doesn’t
apply to any stock of the CFC or QEF that you personally hold or
subsequently acquire. If the entity doesn’t make the election, you
may make the election for the stock of the CFC or QEF owned
through the entity.
If you’re making or have made a section 1.1411-10(g) election
the corresponding checkbox and attach a statement to your
return, as described earlier under Content requirements of
Timing of election. Your election applies to the tax year for
which it’s made and later tax years, and applies to all interests in
the CFC or QEF that you later acquire. You can’t revoke the
election. In general, the election must be made no later than the
first tax year beginning after 2013, in which you include an
amount in income for regular income tax purposes under section
951(a), 951A, or 1293(a) for the stock of the CFC or QEF, and
are subject to NIIT or would be subject to NIIT if you made the
election for the stock of the CFC or QEF. The election may be
made for a tax year beginning before 2014. The election can be
made on an original or an amended return, provided that the tax
year for which the election is made, and all tax years affected by
the election, aren’t closed by the period of limitations on
assessment under section 6501. For more information, see
Regulations section 1.1411-10(g).
Line 1—Taxable Interest
Enter the amount of taxable interest received. Include the
following amount from your return.
Form 1040 or 1040-SR, line 2b.
Form 1041, line 1.
•
•
•
•
Form 1041-QFT, line 1a.
Form 1040-NR, taxable interest received for period of U.S.
residency shown on attached statement.
-5-
Instructions for Form 8960 (2023)
Line 4a—Income From Trades/Businesses, Rental
Real Estate, Royalties, Partnerships, S
Corporations, and Trusts
Adjustments to interest. Interest income earned in the
ordinary course of your non-section 1411 trade or business is
excluded from net investment income. If this type of interest
income is included on line 1, use line 7 to adjust your net
investment income.
If line 1 includes self-charged interest income received from a
partnership or S corporation that’s a nonpassive activity (other
than a trade or business of trading in financial instruments or
commodities), see Line 7—Other Modifications to Investment
Income, later, for a possible adjustment to net investment
income.
Enter the following amount from your properly completed return.
Schedule 1 (Form 1040), line 3.
Schedule 1 (Form 1040), line 5.
Form 1041, line 3.
•
•
•
•
•
Form 1041, line 5.
Form 1041-QFT, the portion of line 4 that’s income and loss
that properly would be reported by a trust filing Form 1041 on
Form 1041, line 5.
Form 1040-NR, the amount properly reported on the
•
attachment to your Form 1040-NR representing the amount that
you would properly include on Schedule 1 (Form 1040), line 5, if
you were filing Form 1040 or 1040-SR and including income and
loss only for your period of U.S. residency.
Line 2—Ordinary Dividends
Enter the amount of ordinary dividends received. Include the
following amount from your return.
Form 1040 or 1040-SR, line 3b.
Form 1041, line 2a.
•
•
•
•
Form 1041-QFT, line 2a.
Note. Income reported on Schedule 1 (Form 1040), line 3, and
Schedule 1 (Form 1040), line 5, include both passive and
nonpassive income, and are added to line 4a of Form 8960.
Nonpassive income included on Schedule C (Form 1040) and
Schedule E (Form 1040), Supplemental Income and Loss, is
removed (as a negative) on line 4b, so that only passive income
from Schedule C (Form 1040), and Schedule E (Form 1040)
remain on line 4c.
Form 1040-NR, ordinary dividends received for period of U.S.
residency shown on attached statement.
Adjustments to dividends. If line 2 includes dividends from
employer securities held in an employee stock ownership plan
(ESOP) that are deductible under section 404(k) or Alaska
Permanent Fund Dividends, include those amounts as negative
modifications on line 7. See Line 7—Other Modifications to
Investment Income, later.
Line 4b—Adjustment for Net Income or Loss
Derived in the Ordinary Course of a Non-Section
1411 Trade or Business
Line 3—Annuities
Use line 4b to adjust the amounts included on line 4a, for gains
and losses that are excluded from the calculation of net
investment income. Enter the amount of gains (as a negative
number) and losses (as a positive number). Enter the net
positive or net negative amount for the following items included
on line 4a that aren’t included in determining net investment
income.
Enter the gross income from all annuities, except annuities paid
from the following.
Section 401—Qualified pension, profit-sharing, and stock
•
bonus plans.
Section 403(a)—Qualified annuity plans purchased by an
•
employer for an employee.
Section 403(b)—Annuities purchased by public schools or
•
Net income or loss from a section 162 trade or business that’s
•
section 501(c)(3) tax-exempt organizations.
Section 408—Individual retirement accounts (IRAs) or
not a passive activity and isn’t engaged in a trade or business of
trading financial instruments or commodities.
•
annuities.
Net income or loss from a section 1411 trade or business
•
Section 408A—Roth IRAs.
•
•
that’s taken into account in determining self-employment
income.
Section 457(b)—Deferred compensation plans of a state and
local government and tax-exempt organization.
Royalties derived in the ordinary course of a section 162 trade
•
Amounts paid in consideration for services (for example,
•
or business that’s not a passive activity.
distributions from a foreign retirement plan that are paid in the
form of an annuity and include investment income that was
earned by the retirement plan).
Passive losses of a former passive activity that are allowed as
•
a deduction in the current year under section 469(f)(1)(A).
How your annuities are reported to you. Net investment
income from annuities is reported to a recipient on Form 1099-R,
Distributions From Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance Contracts, etc. However,
the amount reported on Form 1099-R may also include annuity
payments from retirement plans that are exempt from NIIT.
Amounts subject to NIIT should be identified with code “D” in
box 7. If code “D” is shown in box 7 of Form 1099-R, include on
Form 8960, line 3, the taxable amount reported in box 2a of Form
1099-R. However, if the payor checks box 2b indicating the
taxable amount can’t be determined, you may need to calculate
the taxable portion of your distribution. See Pub. 939, General
Rule for Pensions and Annuities, and Pub. 575, Pension and
Annuity Income, for details.
In addition, use line 4b to adjust for certain types of
nonpassive rental income or loss derived in the ordinary course
of a section 162 trade or business. For example, line 4b includes
the following items.
Nonpassive net rental income or loss of a real estate
•
professional where the rental activity rises to a section 162 trade
or business.
Net rental income or loss that’s a nonpassive activity because
•
it was grouped with a trade or business under Regulations
section 1.469-4(d)(1). See Special Rules for Certain Rental
Income, earlier.
Other rental income or loss from a section 162 trade or
•
business reported on Schedule K-1 (Form 1065), Partner's
Share of Income, Deductions, Credits, etc., line 3, from a
partnership, or Schedule K-1 (Form 1120-S), Shareholder's
-6-
Instructions for Form 8960 (2023)
Share of Income, Deductions, Credits, etc., line 3, from an S
corporation, where the activity isn’t a passive activity.
Line 5b—Net Gain or Loss From Disposition of
Property That Isn’t Subject to Net Investment
Income Tax
Net income that’s been recharacterized as not from a passive
•
activity under the section 469 passive loss rules and is derived in
the ordinary course of a section 162 trade or business. For
example:
1. Net rental income or loss from a rental that meets an
exception under Regulations section 1.469-1T(e)(3)(ii), the
activity rises to a section 162 trade or business, and you
materially participated in the activity; or
Use line 5b to adjust the amounts included on line 5a for gains
and losses that are excluded from the calculation of net
investment income. Enter the amount of gains (as a negative
number) and losses (as a positive number) included on line 5a
that are excluded from net investment income. For example,
line 5b will include amounts such as the following.
2. Net income from property rented to a nonpassive activity.
Gain or loss from the sale of property held in a non-section
•
1411 trade or business.
1. However, if the losses are attributable to formerly
suspended passive losses of the non-section 1411 trade or
business, such gains and losses are excluded from net
investment income to the extent the nonpassive income from the
non-section 1411 trade or business is excluded from net
investment income. See Regulations section 1.1411-4(g)(8) for
more information and examples.
2. Gain or loss from the sale of property held in a
non-section 1411 trade or business doesn’t include substantially
appreciated property that’s recharacterized as portfolio income.
Note. Any income from an estate or trust reported on Part III of
Schedule E (Form 1040) that excluded net investment income is
taken into account on line 7. Don’t report those adjustments on
line 4b.
For line 4b adjustments, enter net positive amounts as a
negative adjustment and enter net negative amounts as
!
CAUTION
a positive adjustment.
Lines 5a–5d—Gains and Losses on the
Dispositions of Property
Gain attributable to net unrealized appreciation (NUA) in
•
Generally, net gain from the disposition of property not used in a
trade or business and net gain or loss from the disposition of
net investment income if included in taxable income.
employer securities held by a qualified plan. See Net gain
Adjustments to your capital loss carryforwards for items of
•
excluded loss. See Adjustments to your capital loss
carryforwards, later.
Gains and losses that aren’t taken into account in computing
taxable income aren’t taken into account in computing net
investment income. For example, gain that isn’t taxable by
reason of section 121 (sale of a principal residence) or section
1031 (like-kind exchanges) isn’t included in net investment
income.
Substantially appreciated property. If an interest in property
is substantially appreciated at the time of disposition (fair market
value exceeds 120% of the adjusted basis), any gain from the
disposition is treated as nonpassive, unless the interest in
property was used in a passive activity for either:
these instructions, for assistance in calculating net gain or loss
includible in net investment income.
1. 20% of the total period during which you held the interest
in property; or
2. The entire 2-year period ending on the date of the
disposition.
See Regulations section 1.469-2(c)(2). The recharacterized
gain may be taken into account under section 1411(c)(1)(A)(iii) if
the gain is attributable to the disposition of property and
recharacterized as portfolio income.
Line 5a—Net Gain or Loss From Disposition of
Property
Calculate and enter the amount of net gain or loss from the
disposition of property by combining the following amounts from
your properly completed return.
Net gain attributable to Net Unrealized Appreciation (NUA)
in employer securities held by a qualified plan. Any gain
attributable to NUA (within the meaning of section 402(e)(4)) that
you realize on a disposition of employer securities held by a
qualified plan is a distribution within the meaning of section
1411(c)(5) and isn’t included in net investment income. However,
any gain realized on a disposition of employer securities
attributable to appreciation in the value of your employer
securities after the distribution from a qualified plan isn’t a
distribution within the meaning of section 1411(c)(5) and is
included in net investment income.
Form 1040 or 1040-SR, line 7, and Schedule 1 (Form 1040),
•
line 4.
Form 1041, lines 4 and 7.
•
•
Form 1041-QFT, line 3, and the portion of line 4 attributed to
ordinary gain/(loss).
Form 1040-NR, the amounts properly reported on the
•
attachment to your Form 1040-NR representing the amounts that
you would enter on Form 1040 or 1040-SR, line 7, and Schedule
1 (Form 1040), line 4, if you were filing Form 1040 or 1040-SR
and including net gain or loss only for your period of U.S.
residency.
Shareholders of CFCs and QEFs without a section
1.1411-10(g) election. In the case of a QEF (other than a QEF
held in a section 1411 trade or business) for which a section
1.1411-10(g) election isn’t in effect, enter the amount treated as
long-term capital gain for regular income tax purposes under
section 1293(a)(1)(B).
Also, in the case of a disposition of a CFC or QEF (other than
a CFC or QEF held in a section 1411 trade or business) for
which a section 1.1411-10(g) election isn’t in effect, enter the
increase or decrease in the amount of gain or loss for NIIT
purposes over the amount of gain or loss for regular income tax
Note. If you incur gain or loss from a disposition that isn’t
reported as described in the previous paragraph, report it on
later.
-7-
Instructions for Form 8960 (2023)
Keep for Your Records
Lines 5a–5d—Net Gains and Losses Worksheet
(A)
(B)
Total of columns (A)+(B)
Capital gains/(losses):
Form 1040 or 1040-SR,
line 7; Form 1041,
line 4; Form 1041-QFT,
line 3; Form 1040-NR,
statement reflecting
U.S. residency portion
of Form 1040 or
Ordinary gains/
(losses): Schedule 1
(Form 1040), line 4;
Form 1041, line 7;
Form 1041-QFT,
portion of line 4
attributed to ordinary
gain/(loss); Form
1040-NR, statement
reflecting U.S.
1040-SR, line 7
residency portion of
Schedule 1 (Form
1040), line 4
Enter
this
1.
2.
Beginning net gains and losses
amount
on line 5a
Gains and losses excluded from net investment income. Use current year amounts for lines 2a–2g and 2i.
(a) Enter net gains from the disposition of property used in a
non-section 1411 trade or business (enter as negative
amounts):
(
) (
)
Name of Trade or Business
Amount
(
(
)
)
(b) Enter net losses from the disposition of property used in
a non-section 1411 trade or business (enter as positive
amounts):
Name of Trade or Business
Amount
(c) Enter net losses from a former passive activity allowed
by reason of section 469(f)(1)(A) . . . . . . . . . . . . . . . .
(d) Gains recognized in the current year for payments
received on an installment sale obligation or private
annuity for the disposition of property used in a
non-section 1411 trade or business . . . . . . . . . . . . . .
(
(
)
)
(e) Enter the net gain attributable to the net unrealized
appreciation (NUA) in employer securities . . . . . . . . . .
(f) In the case of a QEF (other than a QEF held in a section
1411 trade or business) for which a section 1.1411-10(g)
election isn’t in effect, enter the amount treated as
long-term capital gain for regular income tax purposes
under section 1293(a)(1)(B) . . . . . . . . . . . . . . . . . . . .
(
)
(g) Enter any other gains and losses included in net
investment income that aren’t otherwise reported on
Form 8960 and any other gains and losses excluded
from net investment income reported on line 5a. (Enter
excluded gains as a negative number and excluded
losses as a positive number.) . . . . . . . . . . . . . . . . . . .
(h) Enter the amount reported on line 2(i) of this worksheet
from your prior tax year return calculations. Enter as a
positive number . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) If you don’t have a capital loss carryover to next year,
then skip this line and go to line 2(j). Otherwise, enter the
lesser of (i)(1) or (i)(2) as a negative amount . . . . . . . .
(
)
(i)(1) If the sum of the amounts
entered on lines 2(a)–2(h) and
line 3(d), column (A), is greater than
zero, enter that amount here.
Otherwise, enter -0- on line 2(i) and
go to line 2(j) . . . . . . . . . . . . . . . . .
OR
(i)(2) The amount of capital loss
carried over to next year (Schedule D
(Form 1040), line 16, less the amount
allowed as a current deduction on
Schedule D (Form 1040), line 21)
entered as a positive
number . . . . . . . . . . . . . . . . . . . .
Enter
this
(j) Sum of lines 2(a) through 2(i)
amount
on line 5b
-8-
Instructions for Form 8960 (2023)
Keep for Your Records
Lines 5a–5d—Net Gains and Losses Worksheet—continued
(A)
(B)
Total of columns (A)+(B)
Capital gains/(losses):
Form 1040 or 1040-SR,
line 7; Form 1041, line 4;
Form 1041-QFT, line 3;
Form 1040-NR, statement
reflecting U.S. residency
portion of Form 1040 or
1040-SR, line 7
Ordinary gains/
(losses): Schedule 1
(Form 1040), line 4;
Form 1041, line 7;
Form 1041-QFT,
portion of line 4
attributed to ordinary
gain/(loss); Form
1040-NR, statement
reflecting U.S.
residency portion of
Schedule 1 (Form
1040), line 4
3.
Adjustment for gains and losses attributable to the disposition of interests in partnerships and S corporations
(a)
(i) Enter the amount of net gain from the disposition of a
partnership or S corporation included on line 5a to which
section 1411(c)(4)(A) applies . . . . . . . . . . . . . . . . .
Net
Gains
(ii) Enter the amount of net gain included in net investment
income after the application of Regulations section
1.1411-7. (The sum of columns A and B of line 3(a)(ii)
must be less than, or equal to, the sum of columns A and
B of line 3(a)(i).) . . . . . . . . . . . . . . . . . . . . . . . . . .
(iii) Enter the difference between line 3(a)(i) and line 3(a)
(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Enter the amount of net loss from the disposition of an
interest in a partnership or S corporation included on
line 5a to which section 1411(c)(4)(B) applies . . . . . .
(b)
Net
Losses
(ii) Enter the amount of net loss included in net investment
income after the application of Regulations section
1.1411-7. (The sum of columns A and B of line 3(b)(ii)
must be less than, or equal to, the sum of columns A and
B of line 3(b)(i).) . . . . . . . . . . . . . . . . . . . . . . . . . .
(iii) Enter the difference between line 3(b)(i) and line 3(b)
(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c)
(i) Enter the amount of gain recognized in the current year
attributable to payments received on an installment sale
obligation or private annuity that was attributable to the
disposition of an interest in a partnership or an S
Deferred
Sales
corporation in a year preceding the current year. Also
report any gain or loss associated with section 736(b)
payments on this line . . . . . . . . . . . . . . . . . . . . . .
(ii) Enter the amount of adjustment attributable to such
gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(iii) Subtract line 3(c)(ii) from line 3(c)(i) . . . . . . . . . . . . .
(d)
4.
Combine the amounts on lines 3(a)(iii), 3(b)(iii), and 3(c)
Enter this
amount
(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
on line 5c
Sum of items reported on lines 5a–5c
Enter this
amount
Add lines 1, 2(j), and 3(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
on line 5d
If the amount of gain for NIIT purposes is less than the amount of gain for regular income tax purposes, the entry on line 3(a)(iii), 3(b)(iii),
or 3(c)(iii) should be a negative number.
TIP
If the amount of loss for NIIT purposes is less than the amount of loss for regular income tax purposes, the entry on line 3(a)(iii), 3(b)(iii), or
3(c)(iii) should be a positive number.
-9-
Instructions for Form 8960 (2023)
purposes. However, if the gain is higher (or the loss larger) for
NIIT purposes compared to regular income tax purposes, in
which case there’s no impact to the adjustment for capital loss
carryforwards for NIIT purposes, enter the difference on line 6.
(1) and deduct from net investment income any amounts
deducted from income for regular income tax purposes under
section 1296(a)(2). Use line 6 to make increases or decreases to
net investment income as a result of this rule (for items that
aren’t otherwise reflected on Form 8960).
Adjustments to your capital loss carryforwards. Starting in
2014, capital loss carryforwards must be adjusted if any sum of
all capital gain or loss amounts excluded from net investment
income on lines 5b and 5c was a net loss (the sum of all
excluded capital losses was greater than the sum of all excluded
capital gains). Generally, the annual adjustment to your capital
losses carryforward is the lesser of:
Section 1291 funds. If you’re subject to the section 1291 rules
for a PFIC, you’ll include in net investment income any “excess
distributions that are dividends for NIIT purposes as well as any
gains that are treated as excess distributions for regular income
tax purposes.” Use line 6 to make the increases to net
investment income as a result of the application of this rule (for
items that aren’t otherwise reflected on Form 8960).
The amount of your capital loss carryforward from the
•
previous year (the sum of carryforward amounts reflected on
Schedule D (Form 1040), Capital Gains and Losses, lines 6 and
14); or
CFCs and QEFs with a section 1.1411-10(g) election in ef-
fect. If you have a section 1.1411-10(g) election in effect for a
CFC or QEF, you’ll include in net investment income any
inclusions under section 951(a), 951A, or 1293(a) derived from
the CFC or QEF. Inclusions under section 1293(a)(1)(B) may be
reported elsewhere on Form 8960, such as on line 5a. Use line 6
to make the increases to net investment income as a result of the
application of this rule (for items that aren’t otherwise reflected
on Form 8960).
The amount of excluded capital losses in excess of excluded
•
capital gain in the previous year.
these instructions, for assistance with the calculation of capital
loss carryforwards. In addition, see Proposed Regulations
section 1.1411-4(d)(4)(iii) for more information and a
comprehensive example of the application of this rule.
Note. If you included in income an amount under section 951(a)
or section 1293(a) for a CFC or QEF in 2013 and made an
election under Regulations section 1.1411-10(g) after 2013 for
that CFC or QEF, special rules may apply to certain distributions
of previously taxed income from the CFC or QEF that aren’t
subject to regular income tax. For more information, see
Regulations section 1.1411-10.
Pass-through entities. If you hold an interest in a pass-through
entity, the determination of whether a trade or business exists is
made at that entity's level.
Line 5c—Adjustment From Disposition of
Partnership Interest or S Corporation Stock
CFCs and QEFs without a section 1.1411-10(g) election in
effect. If you don’t have a section 1.1411-10(g) election in effect
for a CFC or QEF, you’ll generally include in net investment
income certain distributions of previously taxed income from the
CFC or QEF that aren’t subject to regular income tax. In addition,
other special rules may apply, including rules that provide, as
applicable, alternative basis calculations for your basis in the
CFC or QEF, or your basis in a domestic partnership or S
corporation that owns the interest in the CFC or QEF. Also, the
amount of investment interest expense you take into account for
NIIT purposes may be increased or decreased from the amount
taken into account for regular income tax purposes. (For
additional information on all of these rules, see Regulations
section 1.1411-10.) As a result of these rules, you may need to
include amounts in net investment income that aren't otherwise
reported on Form 8960 or make adjustments to amounts
reported elsewhere on Form 8960. For example, you may need
to include distributions from a CFC or a QEF in net investment
income. Use line 6 to make increases or decreases to net
investment income as a result of the application of this rule (for
items that aren’t otherwise reflected on Form 8960).
Enter the amount from the worksheet for lines 5a–5d, line 3d.
to your return for the year of the disposition.
Line 6—Adjustments to Investment Income for
Certain CFCs and PFICs
If you own stock, directly or indirectly, in a CFC or a PFIC (other
than certain CFCs and PFICs held in a section 1411 trade or
business or PFICs marked to market under a provision of Code
chapter 1 other than section 1296), use line 6 for adjustments
necessary to calculate your net investment income.
Income from investments in CFCs and PFICs is generally
included in the calculation of net investment income and, in
many cases, will be included (in whole or in part) on other lines
of Form 8960. Generally, dividends from a CFC or a PFIC that
are included in your regular income tax base are included on
Form 8960, line 2, and gains and losses derived from the stock
of a CFC or a PFIC that are included in your regular income tax
base are generally included on Form 8960, line 5. Also, income
derived from CFCs and certain PFICs you hold in a section 1411
trade or business is generally reported on Form 8960, line 4a.
Note. Use line 5b to deduct inclusions under section 1293(a)(1)
(B) that are allowed on line 5a, or to adjust the amount of gain or
loss derived from the disposition of shares of a CFC or QEF.
However, if the gain included in net investment income is higher
than the amount reported for regular income tax (or the loss is
greater), report the adjustment on line 6.
Line 6 is used for adjustments that are the result of additional
rules. These additional rules may apply when you own an
interest in a CFC or PFIC and may require you to subtract or add
amounts not otherwise included on Form 8960. These additional
rules vary depending on the set of anti-deferral rules that apply
to you for regular income tax purposes, and for CFCs and QEFs,
and depending on whether you have a Regulations section
1.1411-10(g) election in effect for the CFC or QEF. For more
information about determining the amount to report on line 6, see
Regulations section 1.1411-10.
Note. Even if you don’t have a section 1.1411-10(g) election in
place for a CFC or QEF, there are certain instances in which
distributions to you from the CFC or QEF may not be subject to
NIIT. For example, if a prior holder of the CFC or QEF had made
a section 1.1411-10(g) election for that CFC or QEF and you
receive a distribution of earnings and profits that were previously
included in the net investment income of the prior holder, you
may not be subject to NIIT on that distribution. For more
information, see Regulations section 1.1411-10.
Section 1296 mark-to-market PFICs. Generally, if you’re
subject to the section 1296 mark-to-market rules for a PFIC,
you’ll include in net investment income any amounts included in
income for regular income tax purposes under section 1296(a)
-10-
Instructions for Form 8960 (2023)
Line 7—Other Modifications to Investment Income
Form 8814 election. Parents electing to include their child's
dividends and capital gain distributions in their income by filing
Form 8814 include on Form 8960, line 7, the amount on Form
8814, line 12, excluding Alaska Permanent Fund Dividends.
Use line 7 to report additional net investment income
modifications to net investment income that aren’t otherwise
specified on lines 1–6. For example, use line 7 to report additions
and modifications to net investment income, such as the
following.
Distributions from estates and trusts. Enter the amount from
box 14, code H, of Schedule K-1 (Form 1041), Beneficiary's
Share of Income, Deductions, Credits, etc.
Section 1411 net operating loss (NOL) (enter as a negative
•
Note. If the amount reported in box 14, code H, of Schedule K-1
(Form 1041) is a positive number, enter it on Form 8960, line 7,
and increase your MAGI on Form 8960, line 13 (or Form 8960,
line 19a) by the same amount.
If the amount reported in box 14, code H, of Schedule K-1
(Form 1041) is a negative number, and the trust has indicated
some (or all) of the adjustment also requires a MAGI adjustment,
enter it on Form 8960, line 7, and make the applicable increase
or decrease to your MAGI on Form 8960, line 13 (or Form 8960,
line 19a) as necessary.
Any deductions described in section 62(a)(1) that are properly
•
allocable to a passive activity or trading business, but aren’t
taken into account on line 4a or 5a (enter as a negative amount).
Adjustments for distributions from estates and trusts. See
•
Section 404(k) dividends reported on line 2 (enter as a
•
Interest income reported on line 1 received from certain
•
nonpassive activities (entered as a negative amount). See
Self-charged interest, later.
Section 1411 NOL. If you are allowed an NOL deduction under
section 172 for purposes of determining your regular income tax,
you may also be allowed some, or all, of the NOL deduction in
computing net investment income. Because NOLs are computed
and carried over year by year, you must determine for each NOL
year what portion of the NOL is attributable to net investment
income. To determine how much of the accumulated NOL you
can use in the current tax year as a deduction against your net
investment income, you must first calculate your applicable
portion of the NOL for each loss year. For more information and
examples on the calculation of a section 1411 NOL and its use,
see Regulations section 1.1411-4(h).
Recoveries of deductions taken on a prior year's Form 8960.
•
Other items of net investment income (or properly allocable
•
deductions) not otherwise included on Form 8960 reported on
Schedule 1 (Form 1040), line 8z; Form 1041, line 8; Form
1041-QFT, lines 4 and 9; Form 1040-NR, amount on statement
reporting tax items for your period of U.S. residency
corresponding to Schedule 1 (Form 1040), line 8z. For example,
these items could include the following.
1. Amounts reported on Form 8814, Parents' Election To
Report Child's Interest and Dividends, line 12. See Form 8814
election, later.
Note. No portion of an NOL incurred in a tax year beginning
before 2013 is permitted to reduce net investment income.
Calculating your section 1411 NOL. In any tax year in
which a taxpayer incurs an NOL, the section 1411 NOL is the
lesser of:
2. Substitute interest and dividend payments (generally
reported on Form 1099-MISC, Miscellaneous Information).
3. Net positive periodic payments received from a notional
principal contract (NPC) that’s referenced to property (including
an index) that produces (or would produce, if the property were
to produce income) interest, dividends, royalties, or rents. For
example, an interest rate swap, cap, or floor and an equity swap
would be treated as an NPC that produces net investment
income.
The amount of the NOL for the loss year the taxpayer would
•
incur if only items of gross income that are used to determine net
investment income and only properly allocable deductions (other
than a section 1411 NOL) are taken into account in determining
the NOL under section 172, or
Gains and losses from the disposition of property not included
•
The amount of the taxpayer's NOL for the loss year.
•
on line 5a that are taken into account in computing taxable
income. For example:
For purposes of calculating the section 1411 NOL,
compute your NOL using Form 1045, Application for
Tentative Refund, Schedule A—NOL, with only items of
TIP
1. Gain or loss from the disposition of an annuity or life
income, gain, loss, and deduction on Form 8960 for that year. If
this amount is less than your NOL computed for regular income
tax purposes, then this amount is the applicable portion of your
NOL. If this amount is equal to, or greater than, your NOL
computed for regular income tax purposes, then your applicable
portion is 100% of the regular income tax NOL (which means the
entire NOL will be deductible in computing net investment
income when the NOL is used for regular income tax purposes).
2. Casualty and theft losses reported on Schedule A (Form
1040), Itemized Deductions, line 15 (enter as a negative
amount).
However, gains and losses attributable to assets held in a
non-section 1411 trade or business aren’t included in net
investment income. For more information, see Line 5b—Net
Using your section 1411 NOL. When you deduct an NOL
that originated in a previous year against the current year
income, a portion of the NOL may be deductible in computing
net investment income for the current year, regardless of whether
you’re subject to the NIIT in the current year without the NOL
deduction. The amount of the regular income tax NOL used in
calculating net investment income is called the “applicable
portion.” The applicable portion is the percentage of the regular
income tax NOL that’s a section 1411 NOL. Because NOLs are
calculated on a year-by-year basis, the applicable portion of
each NOL that’s used in the current year may be different.
Other section 62(a)(1) deductions. Use line 7 to report
additional deductions attributable to a section 1411 trade or
business that aren’t included on lines 4–6. Generally, these
deductions are above-the-line deductions reported on Schedule
1 (Form 1040), lines 11–25.
Note. Expenses associated with the trade or business of trading
in financial instruments or commodities that are reported on your
Schedule C (Form 1040) are reported on Form 8960, line 10.
commodities, later.
Note. If you incurred an NOL after 2012 and carried back that
Note. Early withdrawal penalty (Schedule 1 (Form 1040),
NOL to offset income in years preceding the imposition of the
line 18) is reported on Form 8960, line 10.
-11-
Instructions for Form 8960 (2023)
Example: Calculation of Section 1411 NOL for NIIT
Assume an unmarried individual incurs the following NOLs and has waived any potential carryback for each passing year under
section 172(b)(3), and assume that carryforwards are not limited:
(C) Applicable Portion of NOL
[column B divided by column A]
NOL Origination Year
(A) Regular Income Tax NOL
(B) Section 1411 NOL
2018 Calendar Year
2019 Calendar Year
2020 Calendar Year
2021 Calendar Year
$150,000
$100,000
$40,000
None
0.00%
30.0%
100%
50.0%
$30,000
$40,000
$60,000
$120,000
Beginning in 2022, the unmarried individual begins to use the NOLs to offset income:
Tax Year
NOL Origination Year
Regular Income
$300,000
Applicable Portion
Section 1411 NOL
2022 Tax Year
2018 NOL
2019 NOL
2020 NOL
2021 NOL
($150,000)
($100,000)
($40,000)
0.00%
30.0%
100.0%
50.0%
None
($30,000)
($40,000)
($5,000)
($75,000)
($10,000)
Total section 1411 NOL allowed as deduction against 2022 net investment income . . . . . . . . . . . . . .
In 2022, the regular income tax NOLs from 2018–2021 have caused the taxpayer’s AGI ($0) to fall below the statutory threshold; therefore,
the individual isn’t subject to the NIIT.
Tax Year
NOL Origination Year
Regular Income
$600,000
Applicable Portion
Section 1411 NOL
2023 Tax Year
2021 NOL
($110,000)
50.0%
($55,000)
Total section 1411 NOL allowed as deduction against 2023 net investment income . . . . . . . . . . . . . .
($55,000)
In 2023, the regular income tax NOL remaining from 2021 has reduced the taxpayer’s income for regular income tax to $490,000. The
individual is entitled to reduce net investment income by $55,000 (entered as a negative amount on Form 8960, line 7).
NIIT (for example, a carryback to calendar year 2011 and/or
2012), the amount of section 1411 NOL that was included in the
NOL carryback would’ve been used (as an applicable portion)
even though the NIIT wasn’t in effect.
There are two exceptions to including recovered amounts in
net investment income. The two exceptions apply the tax benefit
rule of section 111 within the NIIT system, and therefore operate
independently of the application of section 111 for Code
chapter 1 purposes. First, properly allocable deductions aren’t
reduced in the year of the recovery if the amount deducted in the
prior year didn’t reduce the amount of section 1411 liability.
Second, properly allocable deductions aren’t reduced in the year
of the recovery if the amount deducted in the prior year is
included in net investment income.
these instructions, for an illustration of the calculation and use of
a section 1411 NOL for NIIT purposes.
Deduction recoveries. A recovery or refund of a previously
deducted item increases net investment income in the year of
the recovery. There are two exceptions to this general rule.
Note. The total amount of recovery reported on Form 8960,
line 7, can’t exceed the total amount of properly allocable
deductions for the year.
Generally, for purposes of determining the gross amount of
the recovery, include the recovery of any amount that was
deducted in a prior year, regardless of the application of the tax
benefit rule (see section 111). For example, if a taxpayer
receives a refund of state income taxes from a prior year, such a
refund would be included in the taxpayer's gross income.
However, if the taxpayer was subject to the alternative minimum
tax in the year of the payment, the taxpayer may not have
received any tax benefit under chapter 1 of the Code, and
therefore section 111 may exclude some or all of the refund from
gross income. However, the deductibility of state income taxes
for NIIT is independent of the taxes for alternative minimum tax
purposes. Therefore, the applicability of the recovery rule is
determined without regard to whether the recovered amount was
excluded from gross income by reason of section 111.
-12-
Instructions for Form 8960 (2023)
If the recovered amount relates to a deduction taken in a
tax year beginning before 2013, none of the recovery is
included in net investment income in the year of
If the recovered amount is included in net investment
income on lines 1–6, none of the recovery is included in
net investment income on line 7.
TIP
TIP
recovery.
See Regulations section 1.1411-4(g)(2) for more information
these instructions, to determine the amount of any recovery to
include on line 7.
If the recovered amount relates to a deduction taken in a
tax year beginning after 2012 and you weren’t subject to
TIP
the NIIT because your MAGI (see Line 13—Modified
Adjusted Gross Income (MAGI), later, was below the applicable
threshold on line 14, then none of the recovery is included in net
investment income in the year of recovery. However, this rule
doesn’t apply if you incurred an NOL in the year of the deduction,
and a portion of your NOL is a section 1411 NOL.
In the case of multiple recoveries in a single year,
complete this worksheet for each recovery. If multiple
recoveries relate to a single deduction year, the amount
TIP
reported on lines 8 and 9 of the first recovery worksheet will
become lines 7 and 10, respectively, on the second recovery
worksheet.
Keep for Your Records
Line 7—Deduction Recoveries Worksheet
1. Enter total amount of recovery included in gross income . . . . . . . . . . . . . . . 1.
Don’t include recoveries of items that are included in net investment
•
•
income in the year of recovery (included on lines 1–6).
Don’t include recoveries of items if the amount relates to a deduction
taken in a tax year beginning before 2013.
Don’t include recoveries of items if the amount relates to a deduction
•
taken in a tax year beginning after 2012, and you weren’t subject to the
NIIT solely because your MAGI was below the applicable threshold.
This rule doesn’t apply if you incurred an NOL in such year, and a portion
of such NOL constitutes a section 1411 NOL.
!
CAUTION
2. Amount of the recovery that would’ve been included in gross income,
except for the application of the tax benefit rule under section 111 . . . . . . 2.
3. Total amount of recovery (add lines 1 and 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Enter the percentage of the deduction allocated to net investment income
in the prior year. (If the deduction wasn’t allocated between investment
income and noninvestment income, enter 100%.) . . . . . . . . . . . . . . . . . . . . . 4.
5. Enter the lesser of (a) line 3 multiplied by line 4, or (b) the total amount deducted
on the prior year Form 8960 attributable to items recovered (after any deduction
limitations imposed by section 67 or 68) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
Calculation of recoveries when the deduction isn’t taken into account in computing your section 1411 NOL
6. Multiply line 5 by 3.8% (0.038) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Enter the amount of net investment income in the year of the deduction
(previous year’s Form 8960, line 12, unless line 12 is zero, then previous
year's Form 8960, line 8 minus line 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Add the amount on line 5 to line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Using the previous year's Form 8960, recalculate the NIIT for the year of
the deduction by replacing the amount reported on line 12 with the
amount reported on line 8 of this worksheet (don’t use the net investment
income reported on that year's Form 8960, line 12). Enter your
recalculated NIIT here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Enter the NIIT reported for the year of the deduction . . . . . . . . . . . . . . . . . . .
11. Subtract line 10 from line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Enter the smaller of line 6 or line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
10.
13. Divide line 12 by 3.8% (0.038). Enter the result here and include on
Form 8960, line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
Calculation of recoveries when the deduction is taken into account in computing your section 1411 NOL
14. Enter the amount of the section 1411 NOL in the year of the deduction
(entered as a positive number) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Enter the amount of the section 1411 NOL in the year of the deduction
recomputed without the amount on line 5 (entered as a positive number,
but not less than zero) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
16. Subtract line 15 from line 14. Enter the result here and include on
Form 8960, line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
-13-
Instructions for Form 8960 (2023)
If you have more than one of the deductions described above,
you may use a different method of allocation for each one. The
reasonable method of allocation may differ from year to year.
Examples of reasonable methods of allocation include, but
aren’t limited to, an allocation of the deduction based on the ratio
of the amount of a taxpayer's gross investment income (Form
8960, line 8) to the amount of the taxpayer's AGI. In the case of
an estate or trust, an allocation of a deduction under Regulations
section 1.652(b)-3(b), and in the case of an ESBT, Regulations
section 1.641(c)-1(h), is also a reasonable method.
Self-charged interest. The self-charged interest rules under
section 469 (passive activity loss limitation) apply to lending
transactions between a taxpayer and a pass-through entity in
which the taxpayer owns a direct or indirect interest, or between
certain pass-through entities. The section 469 self-charged
interest rules apply only to items of interest income and interest
expense that are recognized in the same tax year. The
self-charged interest rules:
Treat certain interest income resulting from these lending
•
transactions as passive activity income,
Treat certain deductions for interest expense that are properly
•
Note. If an estate or trust allocates expenses for regular income
tax purposes under Regulations section 1.652(b)-3(b) or
1.641(c)-1(h), any deviation from that allocation may not be a
reasonable allocation method for NIIT purposes.
allocable to the interest income as passive activity deductions,
and
Allocate the passive activity gross income and passive activity
•
deductions resulting from this treatment among the taxpayer's
activities.
Items not deductible in calculating net investment income.
Unless a deduction is specifically identified as properly allocable
to net investment income in the section 1411 regulations, or in
supplemental guidance issued by the IRS in the Internal
Revenue Bulletin, the deduction isn’t permitted.
The rules for computing net investment income adopt a
similar rule for self-charged interest. See Regulations section
1.1411-4(g)(5). Include on line 7 (as a negative amount) the
amount of interest income you received that’s equal to the
amount of interest income that would’ve been considered
passive income under the self-charged interest rules
(Regulations section 1.469-7) had the nonpassive activity been
considered a passive activity.
Line 9a—Investment Interest Expense
Enter on Form 8960, line 9a, interest expense you paid or
accrued during the tax year deducted on Schedule A (Form
1040), line 9. Estates and trusts enter the amount from Form
4952, line 8 (if not required to file Form 4952, use the form as a
worksheet). For individuals filing a Form 1040-NR, include only
the amount of investment interest expense deduction for your
U.S. residency period.
Note. This rule doesn’t apply to interest received on loans made
to a trade or business engaged in the trading of financial
instruments or commodities.
Note. Don’t include any adjustment for interest income on line 7
(as a negative amount) if the corresponding interest deduction is
also taken into account in determining your self-employment
income that’s subject to tax under section 1401(b).
Note. If Form 4952 includes investment interest expense that’s
deducted on Schedule E (Form 1040) and already taken into
account on line 4a, don’t include the same amount on line 9a.
Part II—Investment Expenses
Allocable to Investment Income and
Modifications
Note. If you own a CFC or QEF for which a section 1.1411-10(g)
election isn’t in effect, you may calculate your section 163(d)
investment expense deduction for NIIT purposes differently than
for regular income tax purposes. See Regulations section
1.1411-10(c)(5) for additional guidance. Any modification to your
section 163(d) investment expense deduction for NIIT purposes
is taken into account on line 6.
Investment Expenses
Part II of Form 8960 includes deductions and modifications to
net investment income that aren’t otherwise included in Part I.
Generally, expenses associated with a passive activity trade or
business, or the trade or business of trading in financial
Line 9b—State, Local, and Foreign Income Tax
instruments or commodities conducted through a pass-through
entity are already included on line 4a or on line 5a. Part II is used
to report deductions that are, predominately, itemized
Include state, local, and foreign income taxes you paid for the tax
year that are attributable to net investment income. Form
1040-NR filers include only taxes paid for the U.S. residency
period of the tax year. Sales taxes aren’t deductible in computing
net investment income. You may not take a deduction for any
foreign income taxes paid for the tax year if you took a credit for
any portion of them. See section 275(a)(4).
deductions. For more information on what constitutes properly
allocable deductions, see Regulations sections 1.1411-4(f)–(g).
Reasonable method allocations. To the extent that you have
a properly allocable deduction that’s allocable to both net
investment income and excluded income, you may use any
reasonable method to determine that portion of the deduction
that’s properly allocable to net investment income. The three
items that may be allocated between net investment income and
excluded income are the following.
You can determine the portion of your state, local, and foreign
income taxes allocable to net investment income using any
earlier, and Deductions subject to AGI limitations under section
67 or section 68, later.
State, local, and foreign income taxes if properly deducted on
•
your return when calculating your U.S. regular income tax.
All ordinary and necessary expenses paid or incurred during
•
Miscellaneous itemized deductions are suspended for
the tax year to determine, collect, or obtain a refund of any tax
owed if properly deducted on your return when calculating your
U.S. regular income tax.
tax years 2018 through 2025. Miscellaneous itemized
!
CAUTION
deductions under section 67 aren’t allowed for tax years
beginning after 2017 and before 2026. See section 67(g).
Amounts paid or incurred by the fiduciary of an estate or trust
•
on account of administration expenses, including fiduciaries'
fees and expenses of litigation, which are ordinary and
necessary in connection with the performance of the duties of
administration if properly deducted on your return when
calculating your U.S. regular income tax.
The overall limitation on itemized deductions is also
suspended for tax years 2018 through 2025. The overall
limitation on itemized deductions under section 68 doesn’t apply
for tax years beginning after 2017 and before 2026. See section
68(f).
-14-
Instructions for Form 8960 (2023)
We continue to discuss miscellaneous itemized deductions
under section 67 (and the 2%-of-AGI limitation) and the overall
limitation on itemized deductions under section 68; however,
they are suspended for tax years 2018 through 2025.
instruments or commodities, you may use the net loss amount
on your Schedule C (Form 1040) as a deduction on line 10, and
you don’t need to complete Schedule SE (Form 1040),
Self-Employment Tax.
If you have more than one trade or business, you must
complete Schedule SE (Form 1040) to determine whether you
can include some or all of the trading business Schedule C
(Form 1040) expenses as a deduction on line 10. Complete the
Note. Enter the amount of state, local, or foreign income taxes
on Form 8960, line 9b, net of any deduction limitations imposed
by section 68. See Lines 9 and 10—Application of Itemized
Investment Income Worksheet in these instructions for
assistance in figuring the amount to report on line 9b.
Note. See the Instructions for Schedule SE (Form 1040) for who
must file a Schedule SE (Form 1040). Retain a copy of the
Schedule SE (Form 1040) and the worksheet used to determine
the expenses included as a modification on line 10 with your
records. Don’t file the worksheet with Form 1040 or 1040-SR.
Line 9c—Miscellaneous Investment Expenses
Investment expenses you incur that are directly connected to the
production of investment income are deductible expenses in
determining your net investment income. Generally, these
amounts are reported on Form 4952, line 5. See Form 4952 for
the instructions for line 5 for more information. The amounts
reported on line 9c are the amounts allowable after the
application of the deduction limitations imposed by sections 67
and 68.
section 68, later.
Note. Enter the amount of miscellaneous investment expenses
on Form 8960, line 9c, net of any deduction limitations imposed
by section 67 or section 68. See Lines 9 and 10—Application of
Allocable to Investment Income Worksheet in these instructions
for assistance in figuring the amount to report on line 9c.
earlier.
Don’t include expenses that have been deducted on
other lines of the Form 8960, such as depletion or
depreciation reported on Schedule E (Form 1040) and
TIP
included on Form 8960, line 4a.
Dual-status individuals include only tax items related to their
DO NOT use the following worksheet to calculate
limitations for tax years beginning after 2017 and before
!
CAUTION
2026.
earlier.
Line 10—Additional Modifications
Use line 10 to report additional deductions and modifications to
net investment income that aren’t otherwise reflected on lines 1–
9. Enter amounts on line 10 as positive numbers.
Note. Enter the amount on line 10 after the application of
section 67 or 68. See Lines 9 and 10—Application of Itemized
Investment Income Worksheet in these instructions for
assistance in figuring the amount to report on line 10.
earlier.
You may use line 10 to report properly allocable deductions.
See Regulations sections 1.1411-4(f) and 1.1411-4(g) for
details.
Special rule for traders in financial instruments or com-
modities. If your only business is trading in financial
-15-
Instructions for Form 8960 (2023)
Lines 9 and 10—Application of Itemized Deduction Limitations
on Deductions Properly Allocable to Investment Income
Worksheet
Keep for Your Records
Part I—Application of Section 67 to Deductions Properly Allocable to Investment Income
1. Enter the amount of Miscellaneous Itemized Deductions properly allocable to
investment income before any itemized deduction limitations (description and
Form 8960 line number where they’ll be reported):
Description
Line
Amount
(a)
(b)
2. Enter the total of all items listed in line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
3.
3. Enter the amount of Miscellaneous Itemized Deductions shown on your current
return after the application of the section 67 2%-of-AGI limitation . . . . . . . . . . . .
4. Enter the lesser of the total reported on line 2 or line 3 . . . . . . . . . . . . . . . . . . . .
4.
Part II—Application of Section 67 Limitation to Specific Deductions
(B)
IF line 3 is less than
line 2, THEN divide
line 3 by line 2 AND
enter the amount in
column (B).
IF amounts reported
on Part I, lines 2 and
4, are equal, THEN
enter 1.00 in column
(B).
(C)
Multiply the
individual
amounts in
column (A) by
the amount in
column (B).
(A)
Re-enter the amounts and descriptions from Part I, line 1.
Description
Line
Amount
(a)
(b)
x
x
=
=
Individuals—Use the amounts in column (C) on Part III, line 1, to determine the amount of these deductions that are allowable
after the application of the section 68 limitation.
TIP
Estates or trusts—Enter the amounts in column (C) in the appropriate location on lines 9 and 10. Don’t complete Part III or IV
of this worksheet.
-16-
Instructions for Form 8960 (2023)
Lines 9 and 10—Application of Itemized Deduction Limitations
on Deductions Properly Allocable to Investment Income
Worksheet—continued
Keep for Your Records
Part III—Application of Section 68 to Deductions Properly Allocable to Investment Income (Individuals Only)
1. Enter the amount of Miscellaneous Itemized Deductions properly allocable to
investment income from column (C) of Part II:
Description
Line
Amount
(a)
(b)
2. Enter the amount of state, local, and foreign income taxes that are properly
allocable to investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
3. Enter the amounts of other Itemized Deductions subject to the section 68
limitation and properly allocable to investment income before any itemized
deduction limitations (description and Form 8960 line number where they’ll be
reported):
Description
Line
Amount
(a)
(b)
4. Enter the total deductions properly allocable to investment income subject to the section 68 limitation. Enter
the sum of lines 1 through 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Enter the amount of total itemized deductions reported on Form 1040 or
1040-SR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.
6. Enter all other itemized deductions allowed but not subject to the section 68
deduction limitation:
(a) Investment Interest Expense . . . . . . . . . . . . . . . . . . . . .
(b) Casualty Losses (other than losses described in section
165(c)(1)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Medical Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Gambling Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) Total of lines 6(a) through 6(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6(e).
7. Subtract line 6(e) from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Enter the lesser of line 7 or line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
This is the amount of itemized deductions that are properly allocable to investment income after the application of the sections 67
TIP
and 68 deduction limitations. Use Part IV of this worksheet to reconcile this amount to the individual deduction amounts reported
on Form 8960, lines 9 and 10.
-17-
Instructions for Form 8960 (2023)
Lines 9 and 10—Application of Itemized Deduction Limitations
on Deductions Properly Allocable to Investment Income
Worksheet—continued
Keep for Your Records
Part IV—Reconciliation of Schedule A Deductions to Form 8960, Lines 9 and 10 (Individuals Only)
(B)
IF Part III, line 8, is
less than Part III,
(C)
line 4, THEN divide
line 8 by line 4
Multiply the
individual
AND enter the
amount in column
(B).
IF the amounts
reported on Part III,
lines 4 and 8, are
equal, THEN enter
1.00 in column (B).
amounts in
column (A) by the
amount in column
(B). Enter these
amounts in the
appropriate
(A)
Re-enter the amounts and descriptions from Part III, lines 1–
3.
locations on lines
9 and 10.
Miscellaneous Itemized Deductions properly
allocable to investment income:
Description
Line
Amount
1.
(a)
(b)
×
×
×
=
=
=
2. State, local, and foreign income taxes . . . . . . . . . .
Itemized Deductions Subject to Section 68
Included on Line 3 of Part III:
3.
(a)
(b)
×
×
=
=
-18-
Instructions for Form 8960 (2023)
The amounts reported on line 10 are the amounts allowable
after the application of the deduction limitations imposed by
sections 67 and 68, as applicable. See Deductions subject to
earlier.
Part III—Tax Computation
Deductions subject to AGI limitations under section 67 or
section 68. Any deduction allowed against net investment
income that, for purposes of computing your regular income tax,
is subject to either the 2% floor on miscellaneous itemized
deductions (section 67) or the overall limitation on itemized
deductions (section 68) is allowed in determining net investment
income, but only to the extent the items are deductible after
application of both limitations.
Individuals
Individuals complete lines 13–17.
Line 13—Modified Adjusted Gross Income (MAGI)
If you didn’t exclude any amounts from your gross income under
section 911 and you don’t own a CFC or PFIC, your MAGI is your
AGI as reported on Form 1040 or 1040-SR. If you exclude
amounts under section 911 or own certain CFCs or PFICs, your
MAGI is your AGI as modified by certain rules described in
Regulations section 1.1411-10(e)(1).
earlier.
Miscellaneous itemized deductions. The amount of your
miscellaneous itemized deductions, after application of the 2%
floor but before application of the overall limitation, used in
determining your net investment income is the lesser of:
Section 911. If you exclude amounts from income under
section 911, to calculate your MAGI, you must increase your AGI
by the excess of the amount excluded from income under
section 911(a)(1) over the amount of any deductions (taken into
account in computing AGI) or exclusions disallowed under
section 911(d)(6) for the amount excluded from income under
instructions to compute your MAGI.
That portion of your miscellaneous itemized deductions
•
before the application of the 2% floor that’s properly allocable to
net investment income, or
Your total miscellaneous itemized deductions allowed after the
•
application of the 2% floor but before the application of the
overall limitation on itemized deductions.
CFCs and PFICs. If you own, directly or indirectly, stock in a
CFC or PFIC other than certain CFCs and PFICs held in a
section 1411 trade or business or PFICs marked to market under
section 1296 or any other provision, to calculate your MAGI, you
may need to make certain adjustments to your AGI, as provided
in Regulations section 1.1411-10(e)(1). Generally, these
adjustments include the following.
earlier.
Itemized deductions. The amount of your itemized
deductions allowed in determining your net investment income
after applying both the 2% floor and the overall limitation is the
lesser of:
The sum of :
•
1. The amount of your miscellaneous itemized deductions
1291 funds.
•
allowed as a deduction against your net investment income
(before application of the overall limitation), and
1. Increase AGI by the amount of any excess distributions
derived from a PFIC that are dividends included in MAGI but not
included in gross income for regular income tax purposes, and
2. The total amount of your itemized deductions that aren’t
subject to the 2% floor and are properly allocable to items of
income or net gain for purposes of determining your net
investment income; or
2. Increase AGI by the amount of any gain treated as an
excess distribution under section 1291 included in MAGI but not
included in gross income for regular income tax purposes.
The total amount of your itemized deductions allowed after the
•
CFCs and QEFs without a section 1.1411-10(g) election in
•
application of both the 2% floor and the overall limitation on
itemized deductions.
effect.
1. Decrease AGI by the amount of any section 951(a), 951A,
or 1293(a) inclusions;
For more information and examples, see Regulations section
1.1411-4(f)(7).
Line 10—Worksheet for Traders in Financial Instruments That
Maintain More Than One Trade or Business
Keep for Your Records
Use this worksheet to determine the amount on line 10.
1. Enter the total amount from Schedule SE (Form 1040), line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.
2. (a) If the amount on Schedule SE (Form 1040), line 3, is zero or greater, you can’t use the
expenses from your trade or business to reduce your investment income. Stop here.
(b) If the amount on Schedule SE (Form 1040), line 3, is a negative amount, enter your
expenses from your trade or business of trading in financial instruments or commodities
(entered as a positive amount) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2(b).
3. Add line 1 to line 2(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
(a) If the amount on line 3 of this worksheet is zero or less, include the trade or business
expenses (line 2(b) of the worksheet) on Form 8960, line 10.
(b) If the amount on line 3 of this worksheet is a positive number, convert the amount from
Schedule SE (Form 1040), line 3 (line 1 of this worksheet) into a positive number and
include it on Form 8960, line 10.
-19-
Instructions for Form 8960 (2023)
Keep for Your Records
Line 13—MAGI Worksheet
1. Enter your Adjusted Gross Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Foreign Earned Income Exclusion:
(a) Enter your Foreign Earned Income Exclusion (from
line 42 of Form 2555) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Enter the deductions reported on line 44 of Form
2555 allocable to your Foreign Earned Income
Exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(
)
(c) Combine lines 2(a) and 2(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
Adjustments for certain CFCs and certain PFICs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
3.
4. Enter the sum of line 1, line 2(c), and line 3. (Enter this amount on Form 8960,
line 13.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
2. Increase AGI by the amount of any distributions described
in section 959(d) or 1293(c) included in your net investment
income as a dividend;
3. Increase or decrease AGI (as appropriate) by the amount
of any adjustment to gain or loss on the disposition of the CFC or
QEF that results in an adjustment to your MAGI;
4. Increase or decrease AGI (as appropriate) by the amount
of any adjustment to gain or loss on the disposition of an interest
in a domestic partnership or S corporation that holds a CFC or
QEF that results in an adjustment to your MAGI;
5. Increase or decrease AGI (as appropriate) by the amount
of any adjustment to investment interest expense under
Regulations section 1.1411-10(c)(5) that’s taken into account in
computing MAGI; and
NRA spouse. Note that if you made a section 6013(g) or 6013(h)
election to file jointly with your NRA spouse, but don’t also elect
to apply the joint return election for NIIT purposes, then, for NIIT
purposes, you’ll file as married filing separately and need to use
the applicable threshold amount.
Line 17—Net Investment Income Tax for
Individuals
Form 1040 or 1040-SR filers: Include this amount on
•
Schedule 2 (Form 1040), line 12, and see the instructions there.
Form 1040-NR filers: Include this amount on the line of your
•
U.S. residency statement corresponding to Schedule 2 (Form
1040), line 12, and see the Instructions for Form 1040-NR for the
amount to report on your tax return.
6. Increase or decrease AGI (as appropriate) by the amount
reported to you in box 14, code H, of Schedule K-1 (Form 1041)
that requires a MAGI adjustment.
CFCs and QEFs held in a section 1411 trade or business or
•
Estates and Trusts
with a section 1.1411-10(g) election in effect.
Estates and trusts complete lines 18–21.
Increase AGI by the amount of any distributions described in
section 959(d) or 1293(c) included in your net investment
income as a dividend (not applicable to tax years beginning
before 2014).
Line 18b—Deductions for Distributions of Net
Investment Income and Charitable Deductions
If you don’t own (directly or indirectly) any interests in
The undistributed net investment income of an estate or trust
(reported on line 18c) equals its net investment income (reported
on line 18a) reduced by the net investment income included in
the distributions to beneficiaries deductible by the estate or trust
under section 651 or 661, and by the net investment income for
which the estate or trust was entitled to a section 642(c)
deduction, in each case as calculated under Regulations section
1.642(c)-2 and the allocation and ordering rules under
Regulations section 1.662(b)-2. In the case of the S portion of an
Electing Small Business Trust, as defined by section 1361(e),
net investment income is further reduced by the net investment
income for which the trust was entitled to a section 170
deduction. See Section 641(c)(2)(E).
CFCs or PFICs, and don’t exclude any foreign earned
income on Form 2555, Foreign Earned Income, enter
TIP
your AGI from Form 1040 or 1040-SR on line 13.
Line 14—Threshold Based on Filing Status
The threshold amount is based on your filing status.
Filing Status
Threshold Amount
$250,000
Married Filing Jointly
Qualifying Surviving Spouse
Married Filing Separately
Single or Head of Household
$250,000
$125,000
$200,000
Regulations section 1.1411-3(e) applies the class system of
income categorization, generally embodied in sections 651
through 663 and related regulations, to arrive at the trust's net
investment income reduction in the case of distributions that are
comprised of both net investment income and net excluded
income items. See Regulations section 1.1411-3(e) for more
information and examples on the calculation of undistributed net
investment income.
A bankruptcy estate of an individual enters $125,000 and
uses Form 8960, lines 13–17, to compute the tax.
If you’re a U.S. citizen or resident married to an NRA, your
filing status is married filing separately unless you made an
election under section 6013(g) or 6013(h) to file jointly with your
Charitable deduction. Report the amount of net investment
income distributed to beneficiaries of the estate or trust and the
-20-
Instructions for Form 8960 (2023)
amount of net investment income allocated to distributions to
charity pursuant to section 642(c). The amount of the deduction
for net investment income distributed to charities under section
642(c) is the amount of the net investment income allocated to
the charity in accordance with Regulations section 1.642(c)-2(b)
and the allocation and ordering rules under Regulations section
1.662(b)-2. In the case of the S portion of an Electing Small
Business Trust, as defined by section 1361(e), report the amount
of net investment income distributed to beneficiaries of the
estate or trust and the amount of net investment income
allocated to distributions to charity pursuant to section 170. See
Section 641(c)(2)(E).
which the highest tax bracket begins for the tax year and enter
that amount here.
to report on Form 8960, line 19b.
Line 21—Net Investment Income Tax for Estates
and Trusts
Form 1041 filers: Include this amount on Form 1041,
•
Schedule G, line 5, and see the instructions there.
Form 1041, Schedule A, can be used as a worksheet to
Form 1041-QFT filers: Include this amount on Form
•
calculate the amounts of net investment income
TIP
1041-QFT, line 15, and see the instructions there.
allocable to charitable distributions by including on line 2
both tax-exempt income and the difference between adjusted
total income and the trust's net investment income (Form 8960,
line 18a).
Paperwork Reduction Act Notice. We ask for the information
on this form to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it to
ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
The amount of the deduction for net investment income
distributed to beneficiaries should equal the sum of net
investment income reported to the beneficiaries on their
TIP
You are not required to provide the information requested on
a form that is subject to the Paperwork Reduction Act unless the
form displays a valid OMB control number. Books or records
relating to a form or its instructions must be retained as long as
their contents may become material in the administration of any
Internal Revenue law. Generally, tax returns and return
respective Schedules K-1 (Form 1041).
Note. In general, the deduction for distributions of net
investment income may not exceed the taxable income
distributed to the beneficiary for regular income tax purposes.
However, in the case of an estate or trust that owns an interest in
certain CFCs or PFICs, the distribution of net investment income
can exceed the distribution of taxable income when the amount
of distributions exceeds distributable net income for regular
income tax purposes.
information are confidential, as required by section 6103.
The time needed to complete and file this form will vary
depending on individual circumstances. The estimated average
time is:
Form 1041, Schedule B, can be used as a worksheet to
calculate the income distribution deduction for NIIT
purposes by replacing line 1 with the trust's net
TIP
Recordkeeping . . . . . . . . . . . . . .
Learning about
the law or the form . . . . . . . . . . .
1 hr., 01 min.
investment income (Form 8960, line 18a) and including on line 2
both adjusted tax-exempt interest and the difference between
line 1 and the trust's net investment income (Form 8960,
line 18a).
6 hr., 04 min.
1 hr., 47 min.
Preparing the form . . . . . . . . . . .
Copying, assembling,
and sending the form
to the IRS . . . . . . . . . . . . . . . . . .
20 min.
Line 18c—Undistributed Net Investment Income
Don’t enter a negative number. If negative, enter zero.
Comments and suggestions. We welcome your comments
about this publication and your suggestions for future editions.
Line 19a—Adjusted Gross Income (AGI)
FormComments. Or, you can write to: Internal Revenue Service,
Tax Forms and Publications, 1111 Constitution Ave. NW,
IR-6526, Washington, DC 20224. DO NOT SEND THE FORM
TO THIS ADDRESS.
If the estate or trust doesn’t own a CFC or PFIC, enter its AGI for
regular income tax purposes.
If the estate or trust owns a CFC or PFIC, it may need to make
adjustments. See Line 13—Modified Adjusted Gross Income
(MAGI), earlier.
Although we can't respond individually to each comment
received, we do appreciate your feedback and will consider your
comments as we revise our tax forms, instructions, and
publications. We can't answer tax questions sent to the above
address.
Line 19b—Highest Tax Bracket for Estates and
Trusts
See the instructions for Form 1041, Schedule G, line 1a, and the
instructions for Form 1041-QFT, line 12, for the dollar amount at
-21-
Instructions for Form 8960 (2023)