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10 Investment Income Tax Questions, Answered

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The investment income tax is a surtax of 3.8% in addition to the regular income tax that certain high income taxpayers would otherwise owe on the income in question. The tax is imposed on the lesser of the following amounts:

  1. Net investment income (Question 1 in the slideshow above explains what amounts are included); or
  2. The excess (if any) of i) the taxpayer’s modified adjusted gross income (MAGI) for the year over ii) the applicable threshold amount (detailed in Q2 of the slideshow)

For most taxpayers, MAGI is the same as their adjusted gross income (AGI). This is because the only adjustments made to AGI in arriving at MAGI relate to foreign earned income.

Move through the slideshow above to learn how the net investment income tax affects different income streams, how it effectively increases the tax rate for capital gains and why some trusts are not subject to the tax.

For additional information on taxation of investment income, see 2020 Tax Facts on Individuals & Small Businesses.

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