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Department of the Treasury 2020 Internal Revenue Service Instructions for Form 8960 Net Investment Income Tax—Individuals, Estates, and Trusts

Section references are to the Internal Revenue • Gross income and net gain specifically Section 1.1411-10(g) election. An Code unless otherwise noted. excluded by section 1411, related election made under Regulations section regulations, or other guidance published in 1.1411-10(g) (section 1.1411-10(g) Future Developments the Internal Revenue Bulletin. election). See Regulations Section For the latest information about Examples of excluded items are: 1.1411-10(g) Election, later. Wages, developments related to Form 8960 and • Section 1411 trade or business. Unemployment compensation, its instructions, such as legislation • Generally, a trade or business that’s either Alaska Permanent Fund Dividends, enacted after they were published, go to • a passive activity for the taxpayer or is a Alimony, IRS.gov/Form8960. • trade or business of trading in financial Social security benefits, • instruments or commodities. See section Tax-exempt interest income, • 1411(c)(2) and Regulations section General Instructions Income from certain qualified retirement • 1.1411-5(a). plan distributions, and Reminder • Income subject to self-employment These instructions are based mostly on taxes. Recordkeeping For the NIIT, certain items of investment Regulations sections 1.1411-1 through Net investment income. Generally, net 1.1411-10. income and investment expense receive investment income includes gross income different treatment than for the regular from interest, dividends, annuities, income tax. Therefore, you need to keep Who Must File royalties, and rents, unless they’re derived all records and worksheets for the items Attach Form 8960 to your return if your from the ordinary course of a trade or you need to include on Form 8960. Keep modified adjusted gross income (MAGI) is business that isn’t (a) a passive activity, or all records for the entire life of the greater than the applicable threshold (b) a trade or business of trading in investment to show how you calculated amount. financial instruments or commodities. In basis. You’ll need to know what you did in addition, net investment income includes prior years if the investment was part of a Purpose of Form other gross income derived from a trade or carryback or carryforward. Use Form 8960 to figure the amount of business that’s (a) a passive activity, or (b) your Net Investment Income Tax (NIIT). a trade or business of trading in financial instruments or commodities. Additionally, Application to Individuals Definitions net investment income includes net gain U.S. citizens and residents. Individuals (to the extent taken into account in who have for the tax year (a) MAGI that’s Controlled foreign corporation (CFC). computing taxable income) attributable to over an applicable threshold amount, and Generally, a CFC is any foreign the disposition of property other than (b) net investment income, must pay 3.8% corporation if more than 50% of its voting property held in a trade or business that’s of the smaller of (a) or (b) as their NIIT. power or stock value is owned or not (a) a passive activity, or (b) a trade or The applicable threshold amount is considered owned by U.S. shareholders business of trading in financial instruments (as defined in section 951(b)) on any day based on your filing status. or commodities. To arrive at net • Married Filing Jointly or Qualifying during the tax year. Certain foreign investment income, the above items are insurance companies are considered Widow(er) is $250,000. reduced by deductions allowed against • Married Filing Separately is $125,000. CFCs if more than 25% of their voting the income tax which are properly power or stock value is owned or • Single or Head of Household is allocable to those items of gross income $200,000. considered owned by U.S. shareholders or net gain. See section 1411(c) and (as defined in section 951(b)) on any day Regulations sections 1.1411-4 and Nonresidents. The NIIT doesn’t apply to during the tax year. See section 957(a) 1.1411-10(c). nonresident alien (NRA) individuals. If and (b). Additionally, certain foreign you’re a U.S. citizen or resident married to insurance companies with related person Passive foreign investment company an NRA, your filing status will be married insurance income may be CFCs. See (PFIC). Generally, a PFIC is any foreign filing separately for purposes of section 953(c). A specified foreign corporation if at least 75% of its gross determining your MAGI, net investment corporation described in section 965(e)(1) income is passive income or an average income, and whether you’re subject to the (B) and Regulations section 1.965-1(f)(45) of at least 50% of its assets produce NIIT. However, see information, later, (i)(B) that is not otherwise a CFC is treated passive income or are held for the about certain elections to file jointly with as a CFC for purposes of Regulations production of passive income. See section NRA spouses. section 1.1411-10. See Regulations 1297(a). section 1.965-1(d). Dual-resident individual. If you’re a Qualified electing fund (QEF). dual-resident individual, within the Excluded income. Excluded income Generally, a QEF is a PFIC for which the meaning of Regulations section means: taxpayer has made an election under 301.7701(b)-7(a)(1), you’ll generally be • Income excluded from gross income in section 1295(b) and the PFIC complies treated as a U.S. resident for purposes of chapter 1 of the Internal Revenue Code; with IRS requirements for determining the NIIT. However, you’ll be treated as an • Income not included in net investment ordinary earnings and net capital gain. NRA for purposes of the NIIT if: income; and See section 1295(a). • You determine you would be treated as a resident of a foreign country for

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purposes of an income tax treaty between sections 6013(g) and 6013(h), • Trusts that aren’t classified as “trusts” the United States and that foreign country; respectively, and related regulations. for federal income tax purposes. For • You elect to be treated as a resident of example: You can make either election on an the foreign country for purposes of 1. Real Estate Investment Trusts, and computing your U.S. income tax liability; amended return only if the tax year for and which you’re making the election, and all 2. Common Trust Funds. tax years affected by the election, aren’t • You file Form 1040-NR, U.S. Special computational rules for quali- closed by the period of limitations on Nonresident Alien Income Tax Return, fied funeral trusts (QFTs). The NIIT assessment under section 6501. and Form 8833, Treaty-Based Return applies to the QFT (as defined in section Position Disclosure Under Section 6114 or If you elect to apply a section 6013(g) 685) by treating each beneficiary's interest 7701(b), as provided in Regulations election for NIIT purposes and later in that beneficiary's contract as a separate section 301.7701(b)-7(b). determine that you didn’t meet the criteria trust. Complete one consolidated Form Dual-status individual. If you were a for doing so in that tax year, your election 8960 for all beneficiary contracts subject dual-status individual—that is, an for NIIT purposes will have no effect that to NIIT. individual who was a resident of the year and for all future years. However, if, If a QFT has one or more beneficiary United States for part of the year and an in a later year, you meet the criteria to contracts that have net investment income NRA for the other part of the year—you’re elect to apply your section 6013(g) in excess of the threshold amount: subject to the NIIT only for the portion of election for NIIT purposes, you’ll be • Complete Form 8960, lines 1–12, using the year you were a U.S. resident. The treated as though you did elect to apply only the sum of the net investment income relevant threshold amount isn’t reduced or your section 6013(g) election in that later of the beneficiary contracts that have net prorated for a dual-status individual. year unless you file (or amend) your return investment income in excess of the for that later year to report your NIIT threshold amount; and If you were a U.S. resident on the last without the election for NIIT purposes. day of the tax year, file Form 1040 or • On line 19b: 1040-SR and attach a statement showing 1. Insert the number of beneficiary your income for the part of the year you Application to Estates and contracts that have net investment income were a nonresident. You can use Form Trusts in excess of the threshold amount next to 1040-NR as the statement. the entry on the line, and Domestic estates and trusts. The NIIT If you were a nonresident on the last applies to estates and trusts that have 2. Multiply the number of beneficiary day of the tax year, file Form 1040-NR and undistributed net investment income and contracts that have net investment income attach a statement showing your income adjusted gross income (AGI) in excess of in excess of the threshold amount by the for the part of the year you were a U.S. the threshold amount. The NIIT is 3.8% of threshold amount for the year and enter resident. You can use Form 1040 or the lesser of: that amount on line 19b. 1040-SR as the statement. • The undistributed net investment Example. For 2020, a QFT has a For more information, see the income for the tax year; or beneficiary contract with $14,000 of Instructions for Form 1040-NR and Pub. • The excess, if any, of AGI (as defined in interest income and another beneficiary 519, U.S. Tax Guide for Aliens. section 67(e)) over the applicable contract with $13,000 of dividend income. threshold amount. Neither contract has any properly Election To File Jointly With The applicable threshold amount is the allocable deductions. The threshold Nonresident Spouse—Section dollar amount at which the highest tax amount for the 2020 tax year is $12,950. 6013(g) or 6013(h) bracket in section 1(e) begins for the tax Therefore, the QFT has two beneficiary contracts with net investment income in If you and your spouse elect to file a joint year. See the instructions for Form 1041, excess of the threshold amount for the return under section: Schedule G, line 1a, and the instructions year. • 6013(g) (where an NRA is married to a for Form 1041-QFT, line 12, for the dollar U.S. citizen or resident at the end of the amount at which the highest tax bracket The QFT will report $14,000 on line 1 tax year); or begins for the tax year. (interest) and $13,000 on line 2 • 6013(h) (where at least one spouse Exception for certain domestic trusts. (dividends). Lines 12, 18a, and 19 would was an NRA at the beginning of the tax The following trusts aren’t subject to the each be $27,000 ($14,000 plus $13,000). year, but is a U.S. citizen or resident NIIT. Enter “2” on the dotted line at the end of married to a U.S. citizen or resident at the • Trusts that are exempt from income line 19b and enter $25,900 ($12,950 × 2) end of the tax year); taxes imposed by subtitle A of the Internal on the entry line for 19b. Lines 19c and 20 you can also elect to apply the joint return Revenue Code. will be $1,100 ($27,000 less $25,900). On election for NIIT purposes. If you made a line 21, enter the NIIT liability of $41.80 1. Charitable trusts and qualified 6013(g) or 6013(h) election, but don’t elect ($1,100 × 3.8% (0.038)). retirement plan trusts exempt from tax to apply the joint return election for NIIT under section 501. Special computational rules for elect- purposes, then, for NIIT purposes, you’ll ing small business trusts (ESBTs). 2. Charitable Remainder Trusts file as married filing separately. The NIIT has special computational rules exempt from tax under section 664. for ESBTs. In general, ESBTs compute To make either election for NIIT A trust or decedent's estate in which all • their NIIT in 3 steps. purposes, use your combined items of of the unexpired interests are devoted to income, gain, loss, and deduction from one or more of the purposes described in 1. The ESBT separately calculates your joint return to figure your net section 170(c)(2)(B). the undistributed net investment income of investment income and MAGI; use the • Trusts that are classified as “grantor the S portion and non-S portion according married filing jointly return applicable trusts” under sections 671–679. to the general rules for trusts under threshold amount ($250,000); and check • Electing Alaska Native Settlement chapter 1 of the Code, and then combines the appropriate checkbox near the top of Funds (described in section 646). the undistributed net investment income of Form 8960, Part I. • Perpetual Care (Cemetery) Trusts the S portion and the non-S portion. In the (described in section 642(i)). case of an ESBT that has an S portion and Once you make either election, its a non-S portion, complete lines 1–11 of duration and termination are governed by

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Form 8960 using the items from the non-S regardless of whether you materially during the 10 tax years immediately prior portion, and add undistributed net participate. There are limited exceptions to this tax year. investment income of the S portion to net for rentals. See the discussion on rentals, investment income on line 7. later. For more details on passive If you qualify, your gross rental income 2. The ESBT determines its AGI, activities, see the Instructions for Form from your rental real estate activity is solely for purposes of NIIT, by adding the 8582, Passive Activity Loss Limitations, treated as though derived in the ordinary net income or net loss from the S portion and Pub. 925, Passive Activity and At-Risk course of a trade or business and isn’t to the AGI of the non-S portion as a single Rules. included in your net investment income. If you qualify in the year you dispose of the item of income or loss. See the Trade or Business Activities instructions for line 19a for more property used in the rental real estate information. The definition of trade or business for NIIT activity, the amount of gain or loss from purposes is limited to a trade or business the disposition is also deemed to be 3. To determine whether the ESBT is within the meaning of section 162. This is derived from property used in the ordinary subject to NIIT, the ESBT compares the more restrictive than the definition of a course of a trade or business and isn’t combined undistributed net investment trade or business activity for purposes of included in your net investment income. income with the excess of its AGI over the the passive activity loss rules. For section 1(e) threshold. example, under the passive activity loss Note. For real estate professionals with a For an ESBT with only S rules, a trade or business includes any Regulations section 1.469-9(g) election in TIP corporation income (no non-S activity conducted in anticipation of the effect, all of your rental real estate portion), complete Form 8960 commencement of a trade or business activities constitute a single activity for using the items from the S portion. For and any activity involving research or purposes of applying the 500-hour test ESBTs with an S portion and a non-S experimentation. In some cases, income described in Safe Harbor for Real Estate portion, use Form 8960 as a worksheet for from activities that aren’t passive activities Professionals above. calculating the amounts to enter on line 7 under section 469 will be included in net Note. If you‘re a real estate professional and line 19a. On the S portion's Form investment income because the activity under section 469(c)(7), but you’re unable 8960 worksheet, enter the S portion's net doesn’t rise to the level of a trade or to satisfy the qualifications for the safe investment income on line 7 of the trust's business within the meaning of section harbor, you’re not precluded from Form 8960 and combine line 19a of the 162. The activity must be a trade or establishing that the gross income and Form 8960 worksheet with the non-S business within the meaning of section gain or loss from the disposition of portion's AGI to arrive at the amount on 162 and be nonpassive for purposes of property associated with your rental real line 19a. section 469 before the income is excluded from the NIIT. If you own an interest in a estate activity isn’t included in net See Regulations section 1.1411-3(c) pass-through entity, the determination of investment income. for more details and examples. whether that’s a trade or business is made Special Rules for Certain Rental at that entity's level. Special computational rules for bank- Income ruptcy estates of an individual. A Real Estate Professionals For income tax purposes, Regulations bankruptcy estate of an individual debtor If you’re a real estate professional for section 1.469-2(f)(6) generally is treated as an individual for purposes of purposes of section 469(c)(7), your rental recharacterizes what otherwise would be the NIIT. Regardless of the actual marital income or loss won’t be passive if you passive rental income from a taxpayer's status of the debtor, the applicable materially participated in the rental real property as nonpassive where the threshold for purposes of determining the estate activity. For additional information taxpayer rents the property for use in a NIIT is the amount applicable for a married on real estate professionals, see section trade or business in which the taxpayer person filing separately. 469(c)(7) and Pub. 925. materially participates. Similarly, for Distributions from foreign estates and income tax purposes, a rental activity foreign trusts. If you’re a U.S. person However, your rental income is that’s properly grouped with a trade or who receives a distribution of income from included in net investment income if the business activity in which the taxpayer a foreign estate or foreign trust, you must income isn’t derived in the ordinary course materially participates under Regulations generally include the distribution in your of a trade or business. Qualifying as a real section 1.469-4(d)(1) is a nonpassive net investment income calculation to the estate professional doesn’t necessarily activity. For purposes of calculating your extent that the income is included in your mean you’re engaged in a trade or net investment income, the gross rental AGI for regular income tax purposes. business with respect to the rental real income in both of these situations is However, you don’t need to include any estate activities. If your rental real estate treated as though it’s derived in the distributions of accumulated income that activity isn’t a section 162 trade or ordinary course of a trade or business. you receive from a foreign trust. business or you don’t materially Further, upon the disposition of the assets participate in the rental real estate associated with the rental activity, any Note. The NIIT doesn’t apply directly to activities, the rental income will be gain or loss is also treated as gain or loss foreign estates or foreign trusts. included in NIIT. attributable to the disposition of property Safe Harbor for Real Estate held in a nonpassive trade or business Passive Activity and not included in your net investment Professionals income. General Rules You qualify for the safe harbor if you’re a Net investment income generally includes real estate professional for purposes of Treatment of Former Passive income and gain from passive activities. A section 469 and you: Activities passive activity for purposes of net • Participate in each rental real estate A former passive activity is any activity investment income has the same meaning activity for more than 500 hours during the that was a passive activity in a prior tax as under section 469. A passive activity tax year, or year but isn’t a passive activity in the includes any trade or business in which • Participated in a rental real estate current year. A prior tax year's unallowed you don’t materially participate. A passive activity for more than 500 hours in any 5 loss from a former passive activity is activity also includes any rental activity, tax years (whether or not consecutive) allowed to the extent of current year

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income from the activity. For purposes of However, under the NIIT “fresh start” Required statements. Attach a determining your net investment income, election, you may regroup for the first tax statement to your return for the year of suspended losses from former passive year you’re subject to the NIIT (without the disposition. Your statement must include: activities are allowed as a properly effect of the regrouping). You may regroup • The name and taxpayer identification allocable deduction, but only to the extent only once under this election and that number of the partnership or S corporation nonpassive income from the same activity regrouping will apply to the tax year for of which the interest was transferred, is included in your net investment income which you regroup and all future tax years. • The amount of the transferor's gain or in that year. For more information, see If you’re subject to the NIIT for 2013 and loss on the disposition of the interest for Regulations section 1.1411-4(g)(8) and you don’t regroup, you may make the regular income tax purposes included on examples. election for the first tax year beginning line 5a, after 2013 that you’re subject to the NIIT. Disposition of Entire Interest • The information provided by the You may regroup on an amended partnership or S corporation to the If you disposed of your entire interest in a return, but only if you weren’t subject to transferor relating to the disposition (if passive activity or a former passive activity the NIIT on your original return (or any), and to an unrelated person in a fully taxable previously amended return), and if, • The amount of adjustment to gain or transaction, your losses allocable to the because of a change to the original return, loss due to basis adjustments attributable activity for that year aren’t limited by the you owe NIIT for the year. For additional to ownership in certain CFCs and QEFs. passive activity loss rules for income tax rules regarding regrouping on amended Deferred recognition sales (install- purposes. A fully taxable transaction is a returns, see Regulations section ment sales and private annuities). If transaction in which you recognize all 1.469-11(b)(3)(iv)(C). realized gain or loss. For purposes of you disposed of a partnership interest or S calculating your net investment income, Disclosure requirements. Regroupings corporation stock in an installment sale these losses may be properly allocable under the NIIT “fresh start” are subject to transaction to which section 453 applies, deductions, depending on the underlying the disclosure requirements of Rev. Proc. you need to calculate your adjustment to character and origin of the losses. 2010-13. net gain in the year of the disposition, even if the disposition occurred prior to Note. If you dispose of an activity that’s Disposition of Partnership 2013. The difference between the amount always been a passive activity, the reported for regular income tax and NIIT suspended passive losses from that Interest or S Corporation will be taken into account when each activity are allowed in full as a properly Stock payment is received. You must attach the allocable deduction. In general, an interest in a partnership or S statement described above to your return corporation isn’t property held for use in a in the first year you’re subject to NIIT. In Note. If you dispose of an activity that’s a trade or business and, therefore, gain or subsequent years, attach a statement to former passive activity, any suspended loss from the sale of a partnership interest your return that provides “Adjustment passive losses allowed in the year of or S corporation stock is included in your relates to a deferred recognition sale first disposition by reason of section 469(f)(1) net investment income. reported on line 5c of the (enter year) (A) are included as properly allocable return.” deductions, but only to the extent the gain Adjustment on the disposition of the activity is The amount of the gain or loss from the Regulations Section included in net investment income (before disposition for regular income tax taking into account any suspended purposes is included on Form 8960, 1.1411-10(g) Election losses). Any suspended passive losses line 5a, as a gain or loss. If you materially In general, you may make the election that are allowed by reason of section participated (as defined under the passive provided in Regulations section 469(g) are allowed as additional properly activity loss rules) in a trade or business 1.1411-10(g) if you own stock of a CFC or allocable deductions. activity of the partnership or S corporation QEF. If a section 1.1411-10(g) election is in effect for stock of a CFC or QEF, Economic Grouping (or one of its subsidiaries) and that trade or business activity isn’t the trade or generally the amounts you include in You can treat one or more trade or business of trading in financial instruments income for regular income tax purposes business activities, or rental activities, as a or securities, then you must calculate the under sections 951, 951A, and 1293 from single activity if those activities form an adjustment to report on line 5c. The the stock of the CFC or QEF are included appropriate economic unit for measuring adjustment described below only applies in net investment income, and gain or loss under the passive activity loss to dispositions of equity interests in distributions from the stock of the CFC or rules. For additional information on partnerships and stock in S corporations QEF described in section 959(d) or passive activity grouping rules, see Pub. and doesn’t apply to gain or loss 1293(c) are excluded from net investment 925. recognized on, for example, indebtedness income. Regrouping rules. The passive activity owed to the taxpayer by a partnership or S Your election applies only to the grouping rules determine the scope of corporation. specific stock of the CFC or QEF for which your trade or business and whether that For more information on how to it’s made and stock of the CFC or QEF trade or business is a passive activity for calculate the adjustment to report on that you subsequently acquire. If you own purposes of the NIIT. The proper grouping line 5c, see Proposed Regulations section a CFC or QEF through certain domestic of a rental activity with a trade or business 1.1411-7. pass-through entities, such as a domestic activity won’t generally convert any gross partnership, the entity may make the income from rents into gross income Note. If the tax basis of the interest in the election for the stock of the CFC or QEF derived from a trade or business. partnership or S corporation for NIIT and you’ll be considered as having made Generally, you may not regroup purposes is different than for regular the election with respect to the stock of the activities unless your grouping was clearly income tax purposes due to certain CFC or QEF owned or subsequently inappropriate when originally made, or has adjustments associated with income from acquired by the pass-through entity. The become clearly inappropriate because of CFCs or QEFs, the amount of gain or loss election by the pass-through entity applies changed facts and circumstances. may exceed the amount reported for only to stock of the CFC or QEF held or regular income tax purposes. subsequently acquired directly or

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indirectly by the pass-through entity. The include on the statement a declaration that If line 1 includes self-charged interest pass-through entity's election doesn’t you elect under Regulations section income received from a partnership or S apply to any stock of the CFC or QEF that 1.1411-10(g) to apply the rules in section corporation that’s a nonpassive activity you personally hold or subsequently 1.1411-10(g). (other than a trade or business of trading acquire. If the entity doesn’t make the in financial instruments or commodities), election, you may make the election for Special Rule for Traders in see Line 7—Other Modifications to the stock of the CFC or QEF owned Investment Income, later, for a possible through the entity. Financial Instruments or adjustment to net investment income. Commodities Timing of election. Your election applies to the tax year for which it’s made and Gains and losses from your trade or Line 2—Ordinary Dividends business of trading in financial instruments later tax years, and applies to all interests Enter the amount of ordinary dividends in the CFC or QEF that you later acquire. or commodities aren’t subject to self-employment taxes. However, interest received. Include the following amount You can’t revoke the election. In general, from your return. the election must be made no later than expense and other investment expenses are deducted by a trader on Schedule C • Form 1040 or 1040-SR, line 3b. the first tax year beginning after 2013, in • Form 1041, line 2a. which you include an amount in income for (Form 1040), Profit or Loss From Business, if the expenses are from the • Form 1041-QFT, line 2a. regular income tax purposes under • Form 1040-NR, ordinary dividends section 951(a), 951A, or 1293(a) for the trading business. A special rule may apply to a trader in financial instruments or received for period of U.S. residency stock of the CFC or QEF, and are subject shown on attached statement. to NIIT or would be subject to NIIT if you commodities to reduce net investment income. The trader's interest and other made the election for the stock of the CFC See Special computational rules for investment expenses, to the extent the or QEF. The election may be made for a qualified funeral trusts (QFTs) and expenses aren’t used to reduce the tax year beginning before 2014. The Dual-status individual, earlier. election can be made on an original or an trader's self-employment income, may be amended return, provided that the tax year deductible for NIIT. Adjustments to dividends. If line 2 for which the election is made, and all tax includes dividends from employer years affected by the election, aren’t Specific Instructions securities held in an employee stock closed by the period of limitations on ownership plan (ESOP) that are assessment under section 6501. For more deductible under section 404(k) or Alaska information, see Regulations section Part I—Investment Income Permanent Fund Dividends, include those 1.1411-10(g). amounts as negative modifications on Elections for Investment line 7. See Line 7—Other Modifications to Example. If, in 2020, a single Income Investment Income, later. individual acquires stock in a QEF, has a If you’re making the section 6013(g) or QEF inclusion of $5,000, and has MAGI of 6013(h) election (see Election To File Line 3—Annuities $150,000, the individual wouldn’t have to Jointly With Nonresident make a section 1.1411-10(g) election for Spouse—Section 6013(g) or 6013(h), Enter the gross income from all annuities, 2020 because section 1411 isn’t earlier), check the corresponding except annuities paid from the following. applicable. If, in 2021, the individual has checkbox. • Section 401—Qualified pension, MAGI in excess of $200,000, and the profit-sharing, and stock bonus plans. individual would like to take QEF If you’re making or have made a • Section 403(a)—Qualified annuity plans inclusions into account for purposes of section 1.1411-10(g) election (see purchased by an employer for an section 1411 in the same manner and in Regulations Section 1.1411-10(g) employee. the same tax year as those amounts are Election, earlier), check the corresponding • Section 403(b)—Annuities purchased taken into account for Code chapter 1 checkbox and attach a statement to your by public schools or section 501(c)(3) purposes, the individual must make the return as described earlier under Content tax-exempt organizations. section 1.1411-10(g) election for 2021 in requirements of election. • Section 408—Individual Retirement the time and manner described in Accounts (IRAs) or Annuities. Regulations section 1.1411-10(g). Line 1—Taxable Interest • Section 408A—Roth IRAs. Section 457(b)—Deferred Content requirements of election. If • Enter the amount of taxable interest compensation plans of a state and local you’re making or made the election in a received. Include the following amount government and tax-exempt organization. prior year, you must check the checkbox from your return. Amounts paid in consideration for for “Regulations section 1.1411-10(g) • • Form 1040 or 1040-SR, line 2b. services (for example, distributions from a election” on the Form 8960 filed with your • Form 1041, line 1. foreign retirement plan that are paid in the original or amended return. In addition, • Form 1041-QFT, line 1a. form of an annuity and include investment you must attach a statement to your return • Form 1040-NR, taxable interest income that was earned by the retirement which includes the following. received for period of U.S. residency plan). • Your name and SSN (individuals) or shown on attached statement. EIN (estates and trusts). How your annuities are reported to • The following information for each CFC See Special computational rules for you. Net investment income from or QEF for which an election is made. qualified funeral trusts (QFTs) and annuities is reported to a recipient on 1. The name of the CFC or QEF. Dual-status individual, earlier. Form 1099-R, Distributions From Pensions, Annuities, Retirement or 2. Either the EIN of the CFC or QEF, Adjustments to interest. Interest Profit-Sharing Plans, IRAs, Insurance or, if the CFC or QEF doesn’t have an EIN, income earned in the ordinary course of Contracts, etc. However, the amount the reference ID number of the CFC or your non-section 1411 trade or business is reported on Form 1099-R may also QEF. excluded from net investment income. If include annuity payments from retirement In addition, list separately each CFC or this type of interest income is included on plans that are exempt from NIIT. Amounts QEF for which an election is being made line 1, use line 7 to adjust your net subject to NIIT should be identified with for the first time with this return and investment income.

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code “D” in box 7. If code “D” is shown in • Nonpassive net rental income or loss of box 7 of Form 1099-R, include on Form a real estate professional where the rental 8960, line 3, the taxable amount reported activity rises to a section 162 trade or Line 5a—Net Gain or Loss From on Form 1099-R, box 2a. However, if the business. Disposition of Property payor checks box 2b indicating the taxable • Net rental income or loss that’s a amount can’t be determined, you may nonpassive activity because it was Calculate and enter the amount of net gain need to calculate the taxable portion of grouped with a trade or business under or loss from the disposition of property by your distribution. See Pub. 939, General Regulations section 1.469-4(d)(1). See combining the following amounts from Rule for Pensions and Annuities, and Pub. Special Rules for Certain Rental Income, your properly completed return. 575, Pension and Annuity Income, for earlier. • Form 1040 or 1040-SR, line 7, and details. • Other rental income or loss from a Schedule 1 (Form 1040), line 4. section 162 trade or business reported on • Form 1041, lines 4 and 7. Line 4a—Rental Real Estate, Schedule K-1 (Form 1065), Partner's • Form 1041-QFT, line 3, and the portion Share of Income, Deductions, Credits, of line 4 attributed to ordinary gain/(loss). Royalties, Partnerships, S etc., line 3, from a partnership, or • Form 1040-NR, the amounts properly Corporations, and Trusts Schedule K-1 (Form 1120-S), reported on the attachment to your Form Enter the following amount from your Shareholder's Share of Income, 1040-NR representing the amounts that properly completed return. Deductions, Credits, etc., line 3, from an S you would enter on Form 1040 or 1040- • Schedule 1 (Form 1040), line 5. corporation, where the activity isn’t a SR, line 7, and Schedule 1 (Form 1040), • Form 1041, line 5. passive activity. line 4, if you were filing Form 1040 or • Form 1041-QFT, the portion of line 4 • Net income that’s been recharacterized 1040-SR and including net gain or loss that’s income and loss that properly would as not from a passive activity under the only for your period of U.S. residency. be reported by a trust filing Form 1041 on section 469 passive loss rules and is Form 1041, line 5. derived in the ordinary course of a section See Special computational rules for • Form 1040-NR, the amount properly 162 trade or business. For example: qualified funeral trusts (QFTs) and reported on the attachment to your Form 1. Net rental income or loss from a Dual-status individual, earlier. 1040-NR representing the amount that rental that meets an exception under you would properly include on Schedule 1 Regulations section 1.469-1T(e)(3)(ii), the Note. If you incur gain or loss from a (Form 1040), line 5, if you were filing Form activity rises to a section 162 trade or disposition that isn’t reported as described 1040 or 1040-SR and including income business, and you materially participated in the previous paragraph, report it on and loss only for your period of U.S. in the activity; or line 7. See Line 7—Other Modifications to Investment Income, later. residency. 2. Net income from property rented to a nonpassive activity. See Special Rules See Special computational rules for for Certain Rental Income, earlier. Line 5b—Net Gain or Loss From qualified funeral trusts (QFTs) and Disposition of Property That Isn’t Dual-status individual, earlier. Note. Any income from an estate or trust Subject to Net Investment Income reported on Part III of Schedule E (Form Line 4b—Adjustment for Net 1040), Supplemental Income and Loss, Tax Income or Loss Derived in the that excluded net investment income is Use line 5b to adjust the amounts included taken into account on line 7. Don’t report on line 5a for gains and losses that are Ordinary Course of a Non-Section those adjustments on line 4b. excluded from the calculation of net 1411 Trade or Business investment income. Enter the amount of For line 4b adjustments, enter net gains (as a negative number) and losses Enter the net positive or net negative positive amounts as a negative ! (as a positive number) included on line 5a amount for the following items included on CAUTION adjustment and enter net negative that are excluded from net investment line 4a that aren’t included in determining amounts as a positive adjustment. net investment income. income. For example, line 5b will include • Net income or loss from a section 162 Lines 5a–5d—Gains and amounts such as the following. trade or business that’s not a passive • Gain or loss from the sale of property activity and isn’t engaged in a trade or Losses on the Dispositions of held in a non-section 1411 trade or business of trading financial instruments Property business. or commodities. Generally, net gain from the disposition of 1. However, if the losses are • Net income or loss from a section 1411 property not used in a trade or business attributable to formerly suspended passive trade or business that’s taken into account and net gain or loss from the disposition of losses of the non-section 1411 trade or in determining self-employment income. property held in a section 1411 trade or business, such gains and losses are • Royalties derived in the ordinary course business is included in net investment excluded from net investment income to of a section 162 trade or business that’s income if included in taxable income. the extent the nonpassive income from the not a passive activity. non-section 1411 trade or business is • Passive losses of a former passive Gains and losses that aren’t taken into excluded from net investment income. activity that are allowed as a deduction in account in computing taxable income See Regulations section 1.1411-4(g)(8) the current year by reason of section aren’t taken into account in computing net for more information and examples. 469(f)(1)(A). investment income. For example, gain that isn’t taxable by reason of section 121 (sale 2. Gain or loss from the sale of property held in a non-section 1411 trade In addition, use line 4b to adjust for of a principal residence) or section 1031 or business doesn’t include substantially certain types of nonpassive rental income (like-kind exchanges) isn’t included in net appreciated property that’s or loss derived in the ordinary course of a investment income. recharacterized as portfolio income. See section 162 trade or business. For See Lines 5a–5d—Net Gains and Substantially appreciated property, later. example, line 4b includes the following Losses Worksheet, in these instructions, • Gain attributable to net unrealized items. for assistance in calculating net gain or appreciation (NUA) in employer securities loss includible in net investment income. held by a qualified plan. See Net gain

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Lines 5a–5d—Net Gains and Losses Worksheet Keep for Your Records (A) (B) Total of columns (A)+(B) Capital gains/(losses): Ordinary gains/ Form 1040 or 1040-SR, (losses): Schedule 1 line 7; Form 1041, (Form 1040), line 4; line 4; Form 1041-QFT, Form 1041, line 7; line 3; Form 1040-NR, Form 1041-QFT, statement reflecting portion of line 4 U.S. residency portion attributed to ordinary of Form 1040 or gain/(loss); Form 1040-SR, line 7 1040-NR, statement reflecting U.S. residency portion of Schedule 1 (Form 1040), line 4 Enter this 1. Beginning net gains and losses amount on line 5a 2. 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 (FPA) 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

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Lines 5a–5d—Net Gains and Losses Worksheet—continued Keep for Your Records (A) (B) Total of columns (A)+(B) Capital gains/(losses): Ordinary gains/ Form 1040 or 1040-SR, (losses): Schedule 1 line 7; Form 1041, line 4; (Form 1040), line 4; Form 1041-QFT, line 3; Form 1041, line 7; Form 1040-NR, statement Form 1041-QFT, reflecting U.S. residency portion of line 4 portion of Form 1040 or attributed to ordinary 1040-SR, line 7 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 Net partnership or S corporation included on line 5a to which Gains section 1411(c)(4)(A) applies ...... (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) ...... (b) (i) Enter the amount of net loss from the disposition of a Net partnership or S corporation included on line 5a to which Losses section 1411(c)(4)(B) applies ...... (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 Deferred attributable to payments received on an installment sale Sales obligation or private annuity that was attributable to the disposition of an interest in a partnership or an S 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) Combine the amounts on lines 3(a)(iii), 3(b)(iii), and 3(c) Enter this (iii) ...... amount on line 5c 4. Sum of items reported on lines 5a–5c Enter this Add lines 1, 2(j), and 3(d) ...... amount 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), TIP or 3(c)(iii) should be a negative number.

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.

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attributable to NUA in employer securities Generally, the annual adjustment to your require you to subtract or add amounts not held by a qualified plan, later. capital losses carryforward is the lesser of: otherwise included on Form 8960. These • Adjustments to your capital loss • The amount of your capital loss additional rules vary depending on the set carryforwards for items of excluded loss. carryforward from the previous year (the of anti-deferral rules that apply to you for See Adjustments to your capital loss sum of carryforward amounts reflected on regular income tax purposes, and for carryforwards, later. Schedule D (Form 1040), Capital Gains CFCs and QEFs, and depending on and Losses, lines 6 and 14); or whether you have a section 1.1411-10(g) Substantially appreciated property. The amount of excluded capital losses election in effect for the CFC or QEF. For Generally, Regulations section 1.469-2(c) • in excess of excluded capital gain in the more information about determining the (2)(iii)(A) provides that if an interest in previous year. amount to report on line 6, see property previously used in a nonpassive Regulations section 1.1411-10. activity but not used in a passive activity See Lines 5a–5d—Net Gains and for more than 2 years prior to disposition is Losses Worksheet, in these instructions, Section 1296 mark-to-market PFICs. substantially appreciated at the time of for assistance with the calculation of Generally, if you’re subject to the section disposition, any gain from the disposition capital loss carryforwards. In addition, see 1296 mark-to-market rules for a PFIC, is treated as not from a passive activity. Proposed Regulations section 1.1411-4(d) you’ll include in net investment income The recharacterized gain may be taken (4)(iii) for more information and a any amounts included in income for into account under section 1411(c)(1)(A) comprehensive example of the application regular income tax purposes under (iii) if the gain is attributable to the of this rule. section 1296(a)(1) and deduct from net disposition of property and Pass-through entities. If you hold an investment income any amounts deducted recharacterized as portfolio income. interest in a pass-through entity, the from income for regular income tax purposes under section 1296(a)(2). Use Net gain attributable to NUA in em- determination of whether a trade or line 6 to make increases or decreases to ployer securities held by a qualified business exists is made at that entity's net investment income as a result of this plan. Any gain attributable to NUA (within level. rule (for items that aren’t otherwise the meaning of section 402(e)(4)) that you reflected on Form 8960). realize on a disposition of employer Line 5c—Adjustment From securities held by a qualified plan is a Disposition of Partnership Interest Section 1291 funds. If you’re subject to distribution within the meaning of section the section 1291 rules for a PFIC, you’ll 1411(c)(5) and isn’t included in net or S Corporation Stock include in net investment income any investment income. However, any gain Enter the amount from the worksheet for “excess distributions that are dividends for realized on a disposition of employer lines 5a–5d, Part II, line 3d. Attach a NIIT purposes as well as any gains that securities attributable to appreciation in statement as described in Required are treated as excess distributions for the value of your employer securities after statements, earlier, to your return for the regular income tax purposes.” Use line 6 the distribution from a qualified plan isn’t a year of the disposition. to make the increases to net investment distribution within the meaning of section income as a result of the application of this 1411(c)(5) and is included in net Line 6—Adjustments to rule (for items that aren’t otherwise investment income. reflected on Form 8960). Investment Income for Certain Shareholders of CFCs and QEFs with- CFCs and PFICs CFCs and QEFs with a section out a section 1.1411-10(g) election. In 1.1411-10(g) election in effect. If you the case of a QEF (other than a QEF held If you own stock, directly or indirectly, in a have a section 1.1411-10(g) election in in a section 1411 trade or business) for CFC or a PFIC (other than certain CFCs effect for a CFC or QEF, you’ll include in which a section 1.1411-10(g) election isn’t and PFICs held in a section 1411 trade or net investment income any inclusions in effect, enter the amount treated as business or PFICs marked to market under section 951(a), 951A, or 1293(a) long-term capital gain for regular income under a provision of Code chapter 1 other derived from the CFC or QEF. Inclusions tax purposes under section 1293(a)(1)(B). than section 1296), use line 6 for under section 1293(a)(1)(B) may be Also, in the case of a disposition of a adjustments necessary to calculate your reported elsewhere on Form 8960, such CFC or QEF (other than a CFC or QEF net investment income. as on line 5a. Use line 6 to make the held in a section 1411 trade or business) increases to net investment income as a for which a section 1.1411-10(g) election Income from investments in CFCs and result of the application of this rule (for isn’t in effect, enter the increase or PFICs is generally included in the items that aren’t otherwise reflected on decrease in the amount of gain or loss for calculation of net investment income and, Form 8960). NIIT purposes over the amount of gain or in many cases, will be included (in whole loss for regular income tax purposes. or in part) on other lines of Form 8960. Note. If you included in income an However, if the gain is higher (or the loss Generally, dividends from a CFC or a amount under section 951(a) or section larger) for NIIT purposes compared to PFIC that are included in your regular 1293(a) for a CFC or QEF in 2013 and regular income tax purposes, in which income tax base are included on Form made an election under Regulations case there’s no impact to the adjustment 8960, line 2, and gains and losses derived section 1.1411-10(g) after 2013 for that for capital loss carryforwards for NIIT from the stock of a CFC or a PFIC that are CFC or QEF, special rules may apply to purposes, enter the difference on line 6. included in your regular income tax base certain distributions of previously taxed are generally included on Form 8960, income from the CFC or QEF that aren’t Adjustments to your capital loss carry- line 5. Also, income derived from CFCs subject to regular income tax. For more forwards. Starting in 2014, capital loss and certain PFICs you hold in a section information, see Regulations section carryforwards must be adjusted if any sum 1411 trade or business is generally 1.1411-10. of all capital gain or loss amounts reported on Form 8960, line 4a. excluded from net investment income on CFCs and QEFs without a section lines 5b and 5c was a net loss (the sum of 1.1411-10(g) election in effect. If you Line 6 is used for adjustments that are all excluded capital losses was greater don’t have a section 1.1411-10(g) election the result of additional rules. These than the sum of all excluded capital gains). in effect for a CFC or QEF, you’ll generally additional rules may apply when you own include in net investment income certain an interest in a CFC or PFIC and may distributions of previously taxed income

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from the CFC or QEF that aren’t subject to (enter as a negative amount). See Other Note. Expenses associated with the trade regular income tax. In addition, other section 62(a)(1) deductions, later. or business of trading in financial special rules may apply, including rules • Adjustments for distributions from instruments or commodities that are that provide, as applicable, alternative estates and trusts. See Distributions from reported on your Schedule C (Form 1040) basis calculations for your basis in the estates and trusts, later. are reported on Form 8960, line 10. See CFC or QEF, or your basis in a domestic • Section 404(k) dividends reported on Special rule for traders in financial partnership or S corporation that owns the line 2 (enter as a negative amount). See instruments or commodities, later. interest in the CFC or QEF. Also, the Line 2—Ordinary Dividends, earlier. amount of investment interest expense • Interest income reported on line 1 Note. Early withdrawal penalty (Schedule you take into account for NIIT purposes received from certain nonpassive activities 1 (Form 1040), line 17) is reported on may be increased or decreased from the (entered as a negative amount). See Form 8960, line 10. amount taken into account for regular Self-charged interest, later. Form 8814 election. Parents electing to income tax purposes. (For additional • Recoveries of deductions taken on a include their child's dividends and capital information on all of these rules, see prior year's Form 8960. See Deduction gain distribution in their income by filing Regulations section 1.1411-10.) As a recoveries, later. Form 8814 include on Form 8960, line 7, result of these rules, you may need to • Other items of net investment income the amount on Form 8814, line 12, include amounts in net investment income (or properly allocable deductions) not excluding Alaska Permanent Fund that aren't otherwise reported on Form otherwise included on Form 8960 reported Dividends. 8960 or make adjustments to amounts on Schedule 1 (Form 1040), line 8; Form reported elsewhere on Form 8960. For 1041, line 8; Form 1041-QFT, lines 4 and Distributions from estates and trusts. example, you may need to include 9; Form 1040-NR, amount on statement Enter the amount from Schedule K-1 distributions from a CFC or a QEF in net reporting tax items for your period of U.S. (Form 1041), Beneficiary's Share of investment income. Use line 6 to make residency corresponding to Schedule 1 Income, Deductions, Credits, etc., box 14, increases or decreases to net investment (Form 1040), line 8. For example, these code “H.” income as a result of the application of this items could include the following. Note. If the amount reported on rule (for items that aren’t otherwise 1. Amounts reported on Form 8814, Schedule K-1 (Form 1041), box 14, with a reflected on Form 8960). Parents' Election To Report Child's code “H” is a positive number, enter it on Interest and Dividends, line 12. See Form Form 8960, line 7, and increase your Note. Use line 5b to deduct inclusions 8814 election, later. under section 1293(a)(1)(B) that are MAGI on Form 8960, line 13 (or Form allowed on line 5a, or to adjust the amount 2. Substitute interest and dividend 8960, line 19a) by the same amount. payments (generally reported on Form of gain or loss derived from the disposition If the amount reported on Schedule K-1 1099-MISC, Miscellaneous Income). of shares of a CFC or QEF. However, if (Form 1041), box 14, with a code “H” is a the gain included in net investment 3. Net positive periodic payments negative number, and the trust has income is higher than the amount reported received from a notional principal contract indicated some (or all) of the adjustment for regular income tax (or the loss is (NPC) that’s referenced to property also requires a MAGI adjustment, enter it greater), report the adjustment on line 6. (including an index) that produces (or on Form 8960, line 7, and make the would produce if the property were to applicable increase or decrease to your Note. Even if you don’t have a section produce income) interest, dividends, MAGI on Form 8960, line 13 (or Form 1.1411-10(g) election in place for a CFC royalties, or rents. For example, an 8960, line 19a) as necessary. or QEF, there are certain instances in interest rate swap, cap, or floor and an which distributions to you from the CFC or equity swap would be treated as an NPC Section 1411 NOL. If you have an NOL QEF may not be subject to NIIT. For that produces net investment income. allowed under section 172 for purposes of example, if a prior holder of the CFC or • Gains and losses from the disposition determining your regular income tax, you QEF had made a section 1.1411-10(g) of property not included on line 5a that are may also be allowed to deduct some, or election for that CFC or QEF and you taken into account in computing taxable all, of the NOL in computing net receive a distribution of earnings and income. For example: investment income. Because NOLs are computed and carried over year by year, profits which were previously included in 1. Gain or loss from the disposition of the net investment income of the prior you must determine for each NOL year an annuity or life insurance contract (see what portion of the NOL is attributable to holder, you may not be subject to NIIT on Line 3—Annuities, earlier); and that distribution. For more information, see net investment income. To determine how Regulations section 1.1411-10. 2. Casualty and theft losses reported much of the accumulated NOL you can on Schedule A (Form 1040), Itemized use in the current tax year as a deduction Deductions, line 15 (enter as a negative against your net investment income, you Line 7—Other Modifications to amount). must first calculate your applicable portion Investment Income However, gains and losses attributable to of the NOL for each loss year. For more Use line 7 to report additional net assets held in a non-section 1411 trade or information and examples on the investment income modifications to net business aren’t included in net investment calculation of a section 1411 NOL and its investment income that aren’t otherwise income. For more information, see use, see Regulations section 1.1411-4(h). specified in lines 1–6. For example, use Line 5b—Net Gain or Loss From line 7 to report additions and modifications Disposition of Property That Isn’t Subject Note. No portion of an NOL incurred in a to net investment income such as the to Net Investment Income Tax, earlier. tax year beginning before 2013 is permitted to reduce net investment following. Other section 62(a)(1) deductions. income. • Section 1411 net operating loss (NOL) Use line 7 to report additional deductions (enter as a negative amount). See Section attributable to a section 1411 trade or Calculating your section 1411 NOL. 1411 NOL, later. business that aren’t included on lines 4–6. In any tax year in which a taxpayer incurs • Any deductions described in section Generally, these deductions are an NOL, the section 1411 NOL is the 62(a)(1) that are properly allocable to a above-the-line deductions reported on lesser of: passive activity or trading business, but Schedule 1 (Form 1040), lines 10–21. • The amount of the NOL for the loss aren’t taken into account on line 4a or 5a year the taxpayer would incur if only items

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Example Calculation of Section 1411 NOL for NIIT portion of each NOL that’s used in the current year may be different. Assume an unmarried individual incurs the following NOLs: Note. If you incurred an NOL after 2012 (C) Applicable Portion and carried back that NOL to offset (A) Regular Income NOL Origination Year (B) Section 1411 NOL of NOL [Column B income in years preceding the imposition Tax NOL divided by Column A] of the NIIT (for example, a carryback to 2016 Calendar Year $150,000 None 0.00% calendar year 2011 and/or 2012), the amount of section 1411 NOL that was 2017 Calendar Year $100,000 $30,000 30.0% included in the NOL carryback would’ve 2018 Calendar Year $40,000 $40,000 100% been used (as an applicable portion) even 2019 Calendar Year $120,000 $60,000 50.0% though the NIIT wasn’t in effect. See Example Calculation of Section 1411 NOL for NIIT, in these instructions, Beginning in 2020, the unmarried individual begins to use the NOLs to offset his income: for an illustration of the calculation and use of a section 1411 NOL for NIIT purposes. NOL Origination Regular Applicable Section 1411 Deduction recoveries. A recovery or Tax Year Year Income Portion NOL refund of a previously deducted item increases net investment income in the 2020 Tax Year $300,000 year of the recovery. There are two 2016 NOL ($150,000) 0.00% None exceptions to this general rule. 2017 NOL ($100,000) 30.0% ($30,000) Generally, for purposes of determining the gross amount of the recovery, include 2018 NOL ($40,000) 100.0% ($40,000) the recovery of any amount that was 2019 NOL ($10,000) 50.0% ($5,000) deducted in a prior year, regardless of the application of the tax benefit rule (see Total section 1411 NOL allowed as deduction against 2020 net ($75,000) section 111). For example, if a taxpayer investment income ...... receives a refund of state income taxes In 2020, the regular income tax NOLs from 2016–2019 have caused the taxpayer’s AGI from a prior year, such a refund would be ($0) to fall below the statutory threshold; therefore, the individual isn’t subject to the NIIT. 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 NOL Origination Regular Applicable Section 1411 received any tax benefit under chapter 1 Tax Year Year Income Portion NOL of the Code, and therefore section 111 may exclude some or all of the refund from 2021 Tax Year $600,000 gross income. However, the deductibility 2019 NOL ($110,000) 50.0% ($55,000) of state income taxes for NIIT is independent of the taxes for alternative Total section 1411 NOL allowed as deduction against 2021 net ($55,000) minimum tax purposes. Therefore, the investment income ...... applicability of the recovery rule is In 2021, the regular income tax NOL remaining from 2019 has reduced the taxpayer’s determined without regard to whether the income for regular income tax to $490,000. The individual is entitled to reduce his net recovered amount was excluded from investment income by $55,000 (entered as a negative amount on Form 8960, line 7). gross income by reason of section 111. There are two exceptions to including recovered amounts in net investment income. The two exceptions apply the tax of gross income that are used to 100% of the regular income tax NOL benefit rule of section 111 within the NIIT determine net investment income and only (which means the entire NOL will be system, and therefore operate properly allocable deductions (other than deductible in computing net investment independently of the application of section a section 1411 NOL) are taken into income when the NOL is used for regular 111 for Code chapter 1 purposes. First, account in determining the NOL under income tax purposes). properly allocable deductions aren’t section 172, or reduced in the year of the recovery if the • The amount of the taxpayer's NOL for Using your section 1411 NOL. amount deducted in the prior year didn’t the loss year. When you deduct an NOL that originated reduce the amount of section 1411 in a previous year against the current year For purposes of calculating the liability. Second, properly allocable income, a portion of the NOL may be TIP section 1411 NOL, compute your deductions aren’t reduced in the year of deductible in computing net investment NOL using Form 1045, the recovery if the amount deducted in the income for that year, regardless of Application for Tentative Refund, prior year is included in net investment whether you’re subject to the NIIT in that Schedule A—NOL, with only items of income. year without the NOL deduction. The income, gain, loss, and deduction on Form amount of the regular income tax NOL 8960 for that year. If this amount is less Note. The total amount of recovery used in calculating net investment income than your NOL computed for regular reported on Form 8960, line 7, can’t is called the “applicable portion.” The income tax purposes, then this amount is exceed the total amount of properly applicable portion is the percentage of the the applicable portion of your NOL. If this allocable deductions for the year. regular income tax NOL that’s a section amount is equal to, or greater than, your 1411 NOL. Because NOLs are calculated NOL computed for regular income tax on a year-by-year basis, the applicable purposes, then your applicable portion is

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Line 7—Deduction Recoveries Worksheet Keep for Your Records 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 a net operating loss (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 but 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 item 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 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 ...... 10. 11. Subtract line 10 from line 9 ...... 11. 12. Enter the smaller of line 6 or line 11 ...... 12. 13. Divide line 12 by 3.8% (line 12 ÷ 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.

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If the recovered amount relates to section 1.1411-4(g)(5). Include on line 7 duties of administration if properly TIP a deduction taken in a tax year (as a negative amount) the amount of deducted on your return when calculating beginning before 2013, none of interest income you received that’s equal your U.S. regular income tax. the recovery is included in net investment to the amount of interest income that If you have more than one of the income in the year of recovery. would’ve been considered passive income deductions described above, you may use under the self-charged interest rules a different method of allocation for each If the recovered amount relates to (Regulations section 1.469-7) had the one. The reasonable method of allocation a deduction taken in a tax year nonpassive activity been considered a may differ from year to year. beginning after 2012 and you passive activity. weren’t subject to the NIIT because your Examples of reasonable methods of MAGI (see Line 13—Modified Adjusted Note. This rule doesn’t apply to interest allocation include, but aren’t limited to, an Gross Income (MAGI) in these received on loans made to a trade or allocation of the deduction based on the instructions) was below the applicable business engaged in the trading of ratio of the amount of a taxpayer's gross threshold on line 14, then none of the financial instruments or commodities. investment income (Form 8960, line 8) to recovery is included in net investment the amount of the taxpayer's AGI. In the income in the year of recovery. However, Note. Don’t include any adjustment for case of an estate or trust, an allocation of this rule doesn’t apply if you incurred an interest income on line 7 (as a negative a deduction under Regulations section NOL in the year of the deduction, and a amount) if the corresponding interest 1.652(b)-3(b), and in the case of an ESBT, portion of your NOL is a section 1411 deduction is also taken into account in Regulations section 1.641(c)-1(h), is also NOL. determining your self-employment income a reasonable method. that’s subject to tax under section 1401(b). If the recovered amount is Note. If an estate or trust allocates included in net investment income Part II—Investment expenses for regular income tax purposes under Regulations section 1.652(b)-3(b) on lines 1–6, none of the recovery Expenses Allocable to is included in net investment income on or 1.641(c)-1(h), any deviation from that line 7. Investment Income and allocation may not be a reasonable Modifications allocation method for NIIT purposes. See Regulations section 1.1411-4(g)(2) Items not deductible in calculating net for more information and examples. See Investment Expenses investment income. Unless a deduction Line 7—Deduction Recoveries Part II of Form 8960 includes deductions is specifically identified as properly Worksheet, in these instructions, to and modifications to net investment allocable to net investment income in the determine the amount of any recovery to income that aren’t otherwise included in section 1411 regulations, or in include on line 7. Part I. Generally, expenses associated supplemental guidance issued by the IRS In the case of multiple recoveries with a passive activity trade or business, in the Internal Revenue Bulletin, the in a single year, complete this or the trade or business of trading in deduction isn’t permitted. worksheet for each recovery. If financial instruments or commodities multiple recoveries relate to a single conducted through a pass-through entity Line 9a—Investment Interest are already included on line 4a or on deduction year, the amount reported on Expense lines 8 and 9 of the first recovery line 5a. Part II is used to report deductions worksheet will become lines 7 and 10, that are, predominately, itemized Enter on Form 8960, line 9a, interest respectively, on the second recovery deductions. For more information on what expense you paid or accrued during the worksheet. constitutes properly allocable deductions, tax year deducted on Schedule A (Form see Regulations sections 1.1411-4(f)–(g). 1040), line 9. Estates and trusts enter the Self-charged interest. The self-charged amount from Form 4952, line 8 (if not Reasonable method allocations. To interest rules under section 469 (passive required to file Form 4952, use the form as the extent that you have a properly activity loss limitation) apply to lending a worksheet). For individuals filing a Form allocable deduction that’s allocable to both transactions between a taxpayer and a 1040-NR, include only the amount of net investment income and excluded pass-through entity in which the taxpayer investment interest expense deduction for income, you may use any reasonable owns a direct or indirect interest, or your U.S. residency period. method to determine that portion of the between certain pass-through entities. deduction that’s properly allocable to net The section 469 self-charged interest Note. If Form 4952 includes investment investment income. The three items that rules apply only to items of interest income interest expense that’s deducted on may be allocated between net investment and interest expense that are recognized Schedule E (Form 1040) and already income and excluded income are the in the same tax year. The self-charged taken into account on line 4a, don’t include following. interest rules: the same amount on line 9a. State, local, and foreign income taxes if Treat certain interest income resulting • • properly deducted on your return when from these lending transactions as Note. If you own a CFC or QEF for which calculating your U.S. regular income tax. passive activity income, a section 1.1411-10(g) election isn’t in All ordinary and necessary expenses Treat certain deductions for interest • effect, you may calculate your section • paid or incurred during the tax year to expense that are properly allocable to the 163(d) investment expense deduction for determine, collect, or obtain a refund of interest income as passive activity NIIT purposes differently than for regular any tax owed if properly deducted on your deductions, and income tax purposes. See Regulations return when calculating your U.S. regular Allocate the passive activity gross section 1.1411-10(c)(5) for additional • income tax. income and passive activity deductions guidance. Any modification to your section Amounts paid or incurred by the resulting from this treatment among the • 163(d) investment expense deduction for fiduciary of an estate or trust on account of taxpayer's activities. NIIT purposes is taken into account on administration expenses, including line 6. The rules for computing net investment fiduciaries' fees and expenses of litigation, income adopt a similar rule for which are ordinary and necessary in self-charged interest. See Regulations connection with the performance of the

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Line 9b—State, Local, and Foreign imposed by section 68. See Lines 9 and deductions under section 68 does not Income Tax 10—Application of Itemized Deduction apply for tax years beginning after 2017 Limitations on Deductions Properly and before 2026. See section 68(f). Include state, local, and foreign income Allocable to Investment Income taxes you paid for the tax year that are Worksheet in these instructions for We continue to discuss miscellaneous attributable to net investment income. assistance in figuring the amount to report itemized deductions under section 67 (and Form 1040-NR filers include only taxes on line 9b. the 2%-of-AGI limitation) and the overall paid for the U.S. residency period of the limitation on itemized deductions under tax year. Sales taxes aren’t deductible in Line 9c—Miscellaneous section 68; however, they are suspended computing net investment income. You for tax years 2018 through 2025. may not take a deduction for any foreign Investment Expenses Don’t include expenses that have income taxes paid for the tax year if you Investment expenses you incur that are TIP been deducted on other lines of took a credit for any portion of it. See directly connected to the production of the Form 8960, such as depletion section 275(a)(4). investment income are deductible or depreciation reported on Schedule E expenses in determining your net You can determine the portion of your (Form 1040) and included on Form 8960, investment income. Generally, these line 4a. state, local, and foreign income taxes amounts are reported on Form 4952, allocable to net investment income using line 5. See Form 4952 for the instructions Dual-status individuals include only tax any reasonable method. See Reasonable for line 5 for more information. The items related to their period of U.S. method allocations, earlier, and amounts reported on line 9c are the residency. See Dual-status individual, Deductions subject to AGI limitations amounts allowable after the application of earlier. under section 67 or section 68, later. the deduction limitations imposed by sections 67 and 68. See Deductions DO NOT use the following Miscellaneous itemized worksheet to calculate limitations deductions suspended for tax subject to AGI limitations under section 67 ! or section 68, later. for tax years beginning after 2017 CAUTION years 2018 through 2025. and before 2026. Miscellaneous itemized deductions under Note. Enter the amount of miscellaneous section 67 are not allowed for tax years investment expenses on Form 8960, Miscellaneous itemized deductions beginning after 2017 and before 2026. line 9c, net of any deduction limitations See section 67(g). suspended for tax years 2018 through imposed by section 67 or section 68. See 2025. Miscellaneous itemized deductions Lines 9 and 10—Application of Itemized under section 67 are not allowed for tax Overall limitation on itemized deductions Deduction Limitations on Deductions suspended for tax years 2018 through years beginning after 2017 and before Properly Allocable to Investment Income 2026. See section 67(g). 2025. The overall limitation on itemized Worksheet in these instructions for deductions under section 68 does not assistance in figuring the amount to report Overall limitation on itemized deductions apply for tax years beginning after 2017 on line 9c. suspended for tax years 2018 through and before 2026. See section 68(f). Miscellaneous itemized 2025. The overall limitation on itemized We continue to discuss miscellaneous deductions suspended for tax deductions under section 68 does not itemized deductions under section 67 (and years 2018 through 2025. apply for tax years beginning after 2017 the 2%-of-AGI limitation) and the overall Miscellaneous itemized deductions under and before 2026. See section 68(f). limitation on itemized deductions under section 67 are not allowed for tax years section 68; however, they are suspended beginning after 2017 and before 2026. We continue to discuss miscellaneous for tax years 2018 through 2025. See section 67(g). itemized deductions under section 67 (and the 2%-of-AGI limitation) and the overall Note. Enter the amount of state, local, or Overall limitation on itemized deductions limitation on itemized deductions under foreign income taxes on Form 8960, suspended for tax years 2018 through section 68; however, they are suspended line 9b, net of any deduction limitations 2025. The overall limitation on itemized for tax years 2018 through 2025.

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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. Enter the amount of Miscellaneous Itemized Deductions shown on your current return after the application of the section 67 2%-of-AGI limitation ...... 3. 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 (C) column (B). Multiply the IF amounts reported individual on Part I, lines 2 and amounts in 4, are equal, THEN column (A) by (A) enter 1.00 in column the amount in Reenter the amounts and descriptions from Part I, line 1. (B). column (B). Description Line Amount (a) x = (b) x = Individuals —Use the amounts in column (C) on Part III, line 1, to determine the amount of these deductions that are allowable TIP after the application of the section 68 limitation.

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.

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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.

TIP This is the amount of itemized deductions that are properly allocable to investment income after the application of the sections 67 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.

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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.

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, line 4, THEN divide line 8 by line 4 AND (C) enter the amount in Multiply the individual column (B). amounts in column IF the amounts (A) by the amount in reported on Part III, column (B). Enter lines 4 and 8, are these amounts in the (A) equal, THEN enter appropriate location Reenter the amounts and descriptions from Part III, lines 1–3. 1.00 in column (B). 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) × =

Line 10—Additional Modifications Worksheet in these instructions for Overall limitation on itemized deductions assistance in figuring the amount to report suspended for tax years 2018 through Use line 10 to report additional deductions on line 10. 2025. The overall limitation on itemized and modifications to net investment deductions under section 68 does not Miscellaneous itemized income that aren’t otherwise reflected on apply for tax years beginning after 2017 deductions suspended for tax lines 1–9. Enter amounts on line 10 as ! and before 2026. See section 68(f). positive numbers. CAUTION years 2018 through 2025. Miscellaneous itemized deductions under We continue to discuss miscellaneous Note. Enter the amount on line 10 after section 67 are not allowed for tax years itemized deductions under section 67 (and the application of section 67 or 68. See beginning after 2017 and before 2026. the 2%-of-AGI limitation) and the overall Lines 9 and 10—Application of Itemized See section 67(g). limitation on itemized deductions under Deduction Limitations on Deductions section 68; however, they are suspended Properly Allocable to Investment Income for tax years 2018 through 2025.

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You may use line 10 to report properly section 68; however, they are suspended beginning after 2017 and before 2026. allocable deductions. See Regulations for tax years 2018 through 2025. See section 67(g). sections 1.1411-4(f) and 1.1411-4(g) for details. Miscellaneous itemized deductions. Overall limitation on itemized deductions The amount of your miscellaneous suspended for tax years 2018 through Special rule for traders in financial in- itemized deductions, after application of 2025. The overall limitation on itemized struments or commodities. If your only the 2% floor but before application of the deductions under section 68 does not business is trading in financial instruments overall limitation, used in determining your apply for tax years beginning after 2017 or commodities, you may use the net loss net investment income is the lesser of: and before 2026. See section 68(f). amount on your Schedule C (Form 1040) • That portion of your miscellaneous as a deduction on line 10, and you don’t itemized deductions before the application We continue to discuss miscellaneous need to complete Schedule SE (Form of the 2% floor that’s properly allocable to itemized deductions under section 67 (and 1040), Self-Employment Tax. net investment income, or the 2%-of-AGI limitation) and the overall If you have more than one trade or • Your total miscellaneous itemized limitation on itemized deductions under business, you must complete deductions allowed after the application of section 68; however, they are suspended Schedule SE (Form 1040) to determine the 2% floor but before the application of for tax years 2018 through 2025. whether you can include some or all of the the overall limitation on itemized trading business Schedule C (Form 1040) deductions. Part III—Tax Computation expenses as a deduction on line 10. Miscellaneous itemized Individuals Complete the Line 10—Worksheet for deductions suspended for tax Individuals complete lines 13–17. Traders in Financial Instruments That years 2018 through 2025. Maintain More Than One Trade or Miscellaneous itemized deductions under Business. section 67 are not allowed for tax years Line 13—Modified Adjusted Gross beginning after 2017 and before 2026. Income (MAGI) Note. See the Instructions for See section 67(g). Schedule SE (Form 1040) for who must If you didn’t exclude any amounts from file a Schedule SE (Form 1040). Retain a your gross income under section 911 and Overall limitation on itemized deductions you don’t own a CFC or PFIC, your MAGI copy of the Schedule SE (Form 1040) and suspended for tax years 2018 through the worksheet used to determine the is your AGI as reported on Form 1040 or 2025. The overall limitation on itemized 1040-SR. If you exclude amounts under expenses included as a modification on deductions under section 68 does not line 10 with your records. Don’t file the section 911 or own certain CFCs or apply for tax years beginning after 2017 PFICs, your MAGI is your AGI as modified worksheet with Form 1040 or 1040-SR. and before 2026. See section 68(f). The amounts reported on line 10 are by certain rules described in Regulations the amounts allowable after the We continue to discuss miscellaneous section 1.1411-10(e)(1). application of the deduction limitations itemized deductions under section 67 (and Section 911. If you exclude amounts imposed by sections 67 and 68, as the 2%-of-AGI limitation) and the overall from income under section 911, to applicable. See Deductions subject to AGI limitation on itemized deductions under calculate your MAGI, you must increase limitations under section 67 or section 68 section 68; however, they are suspended your AGI by the excess of the amount next. for tax years 2018 through 2025. excluded from income under section Deductions subject to AGI limitations Itemized deductions. The amount of 911(a)(1) over the amount of any under section 67 or section 68. Any your itemized deductions allowed in deductions (taken into account in deduction allowed against net investment determining your net investment income computing AGI) or exclusions disallowed income that, for purposes of computing after applying both the 2% floor and the under section 911(d)(6) for the amount your regular income tax, is subject to overall limitation is the lesser of: excluded from income under section either the 2% floor on miscellaneous • The sum of : 911(a)(1). Use Line 13—MAGI Worksheet in these instructions to compute your itemized deductions (section 67) or the 1. The amount of your miscellaneous MAGI. overall limitation on itemized deductions itemized deductions allowed as a (section 68) is allowed in determining net deduction against your net investment CFCs and PFICs. If you own, directly or investment income, but only to the extent income (before application of the overall indirectly, stock in a CFC or PFIC other the items are deductible after application limitation), and than certain CFCs and PFICs held in a of both limitations. 2. The total amount of your itemized section 1411 trade or business or PFICs Miscellaneous itemized deductions that aren’t subject to the 2% marked to market under section 1296 or deductions suspended for tax floor and are properly allocable to items of any other provision, to calculate your ! MAGI, you may need to make certain CAUTION years 2018 through 2025. income or net gain for purposes of Miscellaneous itemized deductions under determining your net investment income; adjustments to your AGI, as provided in section 67 are not allowed for tax years or Regulations section 1.1411-10(e)(1). beginning after 2017 and before 2026. • The total amount of your itemized Generally, these adjustments include the See section 67(g). deductions allowed after the application of following. both the 2% floor and the overall limitation • 1291 funds. Overall limitation on itemized deductions on itemized deductions. 1. Increase AGI by the amount of any suspended for tax years 2018 through For more information and examples, excess distributions derived from a PFIC 2025. The overall limitation on itemized see Regulations section 1.1411-4(f)(7). that are dividends included in MAGI but deductions under section 68 does not not included in gross income for regular apply for tax years beginning after 2017 Miscellaneous itemized income tax purposes, and deductions suspended for tax and before 2026. See section 68(f). 2. Increase AGI by the amount of any years 2018 through 2025. We continue to discuss miscellaneous gain treated as an excess distribution Miscellaneous itemized deductions under itemized deductions under section 67 (and under section 1291 included in MAGI but section 67 are not allowed for tax years the 2%-of-AGI limitation) and the overall not included in gross income for regular limitation on itemized deductions under income tax purposes.

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Line 13—MAGI Worksheet Keep for Your Records 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. 3. Adjustments for Certain CFCs and Certain PFICs ...... 3. 4. Enter the sum of line 1, line 2(c), and line 3. (Enter this amount on Form 8960, line 13.) ...... 4.

• CFCs and QEFs without a section Line 14—Threshold Based on Estates and Trusts 1.1411-10(g) election in effect. Filing Status Estates and trusts complete lines 18–21. 1. Decrease AGI by the amount of any The threshold amount is based on your section 951(a), 951A, or 1293(a) filing status. Line 18b—Deductions for inclusions; Distributions of Net Investment 2. Increase AGI by the amount of any Filing Status Threshold Amount distributions described in section 959(d) or Income and Deductions Under 1293(c) included in your net investment Married Filing Jointly $250,000 Section 642(c) income as a dividend; Qualifying Widow(er) $250,000 The undistributed net investment income 3. Increase or decrease AGI (as Married Filing $125,000 of an estate or trust (reported on line 18c) appropriate) by the amount of any Separately equals its net investment income (reported adjustment to gain or loss on the on line 18a) reduced by the net investment disposition of the CFC or QEF that results Single or Head of $200,000 Household income included in the distributions to in an adjustment to your MAGI; beneficiaries deductible by the estate or 4. Increase or decrease AGI (as trust under section 651 or 661, and by the appropriate) by the amount of any net investment income for which the adjustment to gain or loss on the A bankruptcy estate of an individual estate or trust was entitled to a section disposition of an interest in a domestic enters $125,000 and uses Form 8960, 642(c) deduction, in each case as partnership or S corporation that holds a lines 13–17, to compute the tax. calculated under Regulations section CFC or QEF that results in an adjustment 1.642(c)-2 and the allocation and ordering rules under Regulations section to your MAGI; If you’re a U.S. citizen or resident 1.662(b)-2. Regulations section 5. Increase or decrease AGI (as married to an NRA, your filing status is 1.1411-3(e) applies the class system of appropriate) by the amount of any married filing separately unless you made income categorization, generally adjustment to investment interest expense an election under section 6013(g) or embodied in sections 651 through 663 under Regulations section 1.1411-10(c)(5) section 6013(h) to file jointly with your and related regulations, to arrive at the that’s taken into account in computing NRA spouse. Note that if you made a trust's net investment income reduction in MAGI; and section 6013(g) or 6013(h) election to file the case of distributions that are jointly with your NRA spouse, but don’t 6. Increase or decrease AGI (as comprised of both net investment income also elect to apply the joint return election appropriate) by the amount reported to and net excluded income items. See for NIIT purposes, then, for NIIT purposes, you on Schedule K-1 (Form 1041) in Regulations section 1.1411-3(e) for more you’ll file as married filing separately and box 14 with a code “H” that requires a information and examples on the need to use the applicable threshold MAGI adjustment. calculation of undistributed net investment amount. • CFCs and QEFs held in a section 1411 income. trade or business or with a section 1.1411-10(g) election in effect. Line 17—Net Investment Income Charitable deduction. Report the amount of net investment income Increase AGI by the amount of any Tax for Individuals distributed to beneficiaries of the estate or distributions described in section 959(d) or Form 1040 or 1040-SR filers: Include trust and the amount of net investment 1293(c) included in your net investment • this amount on Schedule 2 (Form 1040), income allocated to distributions to charity income as a dividend (not applicable to line 8, and see the instructions there. pursuant to section 642(c). The amount of tax years beginning before 2014). • Form 1040-NR filers: Include this the deduction for net investment income If you don’t own (directly or amount on the line of your U.S. residency distributed to charities under section TIP indirectly) any interests in CFCs or statement corresponding to Schedule 2 642(c) is the amount of the net investment PFICs, and don’t exclude any (Form 1040), line 8, and see the income allocated to the charity in foreign earned income on Form 2555, Instructions for Form 1040-NR for how to accordance with Regulations section Foreign Earned Income, enter your AGI include on your return. 1.642(c)-2(b) and the allocation and from Form 1040 or 1040-SR on line 13. ordering rules under Regulations section See Dual-status individual, earlier. 1.662(b)-2.

Instructions for Form 8960 (2020) -19- Page 20 of 20 Fileid: … ions/I8960/2020/A/XML/Cycle02/source 9:35 - 25-Sep-2020

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Form 1041, Schedule A, can be If the estate or trust owns a CFC or circumstances. The estimated average TIP used as a worksheet to calculate PFIC, it may need to make adjustments. time is: the amounts of net investment See Line 13—Modified Adjusted Gross income allocable to charitable distributions Income (MAGI), earlier. Recordkeeping .... 1 hr., 01 min. by including on line 2 both tax-exempt Learning about income and the difference between Line 19b—Highest Tax Bracket for adjusted total income and the trust's net the law or the investment income (Form 8960, line 18a). Estates and Trusts form ...... 6 hr., 04 min. See the instructions for Form 1041, Preparing the The amount of the deduction for Schedule G, line 1a, and the instructions form ...... 1 hr., 47 min. net investment income distributed for Form 1041-QFT, line 12, for the dollar Copying, assembling, to beneficiaries should equal the amount at which the highest tax bracket and sending the form sum of net investment income reported to begins for the tax year and enter that to the IRS ...... 20 min. the beneficiaries on their respective amount here. Schedules K-1 (Form 1041). In the case of a QFT, see Special Note. In general, the deduction for computational rules for qualified funeral Comments and suggestions. We distributions of net investment income trusts (QFTs), earlier, to determine the welcome your comments about this may not exceed the taxable income amount to report on Form 8960, line 19b. publication and your suggestions for future distributed to the beneficiary for regular editions. income tax purposes. However, in the Line 21—Net Investment Income You can send us comments through case of an estate or trust that owns an Tax for Estates and Trusts IRS.gov/FormComments. Or, you can interest in certain CFCs or PFICs, the write to: Internal Revenue Service, Tax distribution of net investment income can • Form 1041 filers: Include this amount on Form 1041, Schedule G, line 5, and Forms and Publications, 1111 Constitution exceed the distribution of taxable income Ave. NW, IR-6526, Washington, DC when the amount of distributions exceeds see the instructions there. • Form 1041-QFT filers: Include this 20224. DO NOT SEND THE FORM TO distributable net income for regular THIS ADDRESS. income tax purposes. amount on Form 1041-QFT, line 15, and see the instructions there. Although we can't respond individually Form 1041, Schedule B, can be to each comment received, we do used as a worksheet to calculate Paperwork Reduction Act Notice. We appreciate your feedback and will the income distribution deduction ask for the information on this form to carry consider your comments as we revise our for NIIT purposes by replacing line 1 with out the Internal Revenue laws of the tax forms, instructions, and publications. the trust's net investment income (Form United States. You are required to give us We can't answer tax questions sent to the 8960, line 18a) and including on line 2 the information. We need it to ensure that above address. both adjusted tax-exempt interest and the you are complying with these laws and to difference between line 1 and the trust's allow us to figure and collect the right net investment income (Form 8960, amount of tax. line 18a). You are not required to provide the information requested on a form that is Line 18c—Undistributed Net subject to the Paperwork Reduction Act Investment Income unless the form displays a valid OMB control number. Books or records relating Don’t enter a negative number. If negative, to a form or its instructions must be enter zero. retained as long as their contents may become material in the administration of Line 19a—Adjusted Gross Income any Internal Revenue law. Generally, tax (AGI) returns and return information are confidential, as required by section 6103. If the estate or trust doesn’t own a CFC or PFIC, enter its AGI for regular income tax The time needed to complete and file purposes. this form will vary depending on individual

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