Please, please, please -- would somebody, preferably from Turbo Tax, provide a clear explanation, with references to the applicable tax law, as to why the $10,000 SALT cap for Schedule A should apply to the state and local income tax deduction for NIIT on Form 8960 Line 9b? I find no clear statement in the IRS instructions that it should.
If the government intends this to be the case with Form 8960, Line 9b, as they clearly do with Schedule A, Line 5e, they should clearly state this on Form 8960, Line 9b. Without such clear instruction, I believe the entry on 8960-Line 9b should come from Schedule A, Line 5a, not Schedule A, Line 5e, but Turbo Tax bases this on Line 5a.
A related question is why there is no SALT deduction allowed if you do not itemize on Schedule A? It is possible that SALT exceeds $10,000 but Schedule A does not exceed the standard deduction.
This NIIT is for net investment income, not gross investment income, the key word being "net". State and local taxes paid reduce the gross investment income to net. Also, by capping this NIIT deduction at $10,000, the NIIT is effectively taxing a paid state and local tax, i.e. double taxation while taxing a portion of the gross investment income, not the net investment income.
