TurboTax calculates Form 8960, Line 9b based on a formula that considers your total investment income, total adjusted gross income (AGI), and state, local, and foreign taxes paid. However, Line 9b is zero if you do not itemize your deductions. Since you're taking the Standard Deduction, TurboTax does not include state taxes paid in the calculation.
Regarding your Net Investment Income Tax (NIIT):
- Your AGI is $300,000, meaning your excess over the threshold is $50,000.
- TurboTax correctly applied the 3.8% NIIT, resulting in a tax of $1,900.
- You paid state tax on the $50,000 at 5%, which amounts to $2,500.
- Normally, state taxes paid on investment income can be deducted on Line 9b, but only if you itemize deductions.
Since TurboTax is showing zero on Line 9b, it likely means that state taxes paid are not being deducted because you are using the standard deduction. If you were to itemize, a portion of your state tax paid could be allocated to reduce your net investment income, potentially lowering your NIIT.
Itemized deductions include things like mortgage, interest, state taxes paid up to $10,000, medical expenses in excess of 7.5% of your AGI, charitable contributions etc.. You may enter these in the deductions and credits section of your return. Once entered, TurboTax will decide which is the better deduction for you to take. If you didn't enter itemized deductions, then the standard deduction amount will be applied by default.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
