How is Form 8960 line 9b calculated by TurboTax?

[Cynthiad66]

Yes you can use the 2019 taxes paid in 2020.  The deduction is based on when you pay it.

You can claim prior years' property tax in the tax year you paid them. For example, if you paid your 2019 property taxes in 2020, claim them on your 2020 taxes. However, you can't include any late fees, interest, or penalties—just the tax itself.

Starting with tax year 2017, you can still claim prepaid property tax but only if it was also assessed in the tax year you're attempting to claim it.

In other words, if your local assessor sent you the 2021 property tax bill in 2020, and you paid it by December 31 of 2020, you can claim it on your 2020 return.

However, if you didn't get an assessment for your 2021 property tax, but you went ahead and paid it anyway by the end of 2020, you can't claim it on your 2020 taxes (but you could on your 2021 taxes, assuming you get assessed in 2021).

Use this Link for more details:

Can I Deduct Property Taxes Paid for a Prior Year

[Mike9241]

reg 1.411-4(f)(3)(iii) - properly allocable deductions for NII refers to to taxes per IRC 164 (a)(3) - state income taxes. while IRC 164(b)(6)(b) limits the 164 (a)(3) deduction to $10K for years 2017-2025 

[smithellen2]

My state taxes ONLY investment income, so my entire state income tax is attributable to investment income. Can I override the defaults in Form 8960 worksheet to show that the entire amount of state income tax should be attributed to investments?

ADDED: I found my answer. I can override by right-clicking and selecting Override in the right-click menu.

[Mike701]

Agree, it should be applying a ratio.  We need an official response from TurboTax.

[AmyC]

The official rules are in Part II—Investment Expenses Allocable to Investment Income and Modifications which shows an example of the application of itemized deductions on investment income. State and local taxes are capped at $10,000 on the federal return and that is the maximum allowed on the 8960.

Related:

Form 8960 

Instructions for Form 8960

Topic No. 559 Net Investment Income Tax - Internal Revenue Service

[64dancer]

I don't have the original question in my string, but this is a ratio I used for NIIT and State Income Taxes:

(Interest+Ordinary Dividends+Capital Gains) / AGI x State Tax on W-2 & Paid on prior years taxes. This result is limited to $10,000. If you have a Sales and Use tax like WI does, be sure to adjust your tax paid by that amount.

[pkjain]

TurboTax is only applying Line 9b when i select itemized deductions. Shouldn't  it also be applying line 9b for Standard Deduction? Is this a bug in software?

[64dancer]

I thoroughly researched this in the past

and received professional help from three sources regarding this very topic. The Tax law says yes, but Turbo Tax (and TaxAct) do not allow it unless you download the software to your computer (assuming your computer is new enough and has enough memory to do so) and manually enter the amount on line 9b. Then, you have to mail your forms in because Turbo Tax won't allow it to efile with an amount on 9b if you use the standard deduction. 

[twbcfo]

This is from the IRS Form 8960 instructions.  It seems that if you do not itemize your deductions, then there is no adjustment for state income taxes whether it is $10,000 SALT cap of above.  However if you are itemizing deductions, your SALT cap is $10,000 and it cannot be more than the SALT cap; however TurboTax uses the state and local income tax amount on Schedule A regardless of the SALP cap..

Deductions subject to AGI limitations under section 67 or section 68.

Any deduction allowed against net investment income that, for purposes of computing your regular income tax, is subject to either the 2% floor on miscellaneous itemized deductions (section 67) or the overall limitation on itemized deductions (section 68) is allowed in determining net investment income, but only to the extent the items are deductible after application of both limitations.

On my TurboTax returns (mainly family), if I was using the standard deduction, TurboTax ignores the state income deduction on Form 8960.  If I was using itemized deductions, TurboTax used the following calculation:  (Form 8960 Line 8 Net Investment Income/AGI) x Schedule A Line 5a.  Hope this helps!

[Taxpro9]

Can someone confirm how TurboTax determines this base? Does it include all deductible state/local/foreign taxes, even if they exceed the $10K SALT cap, as permitted by IRS guidelines?

Would also appreciate knowing if this is documented anywhere within TurboTax or tied to specific inputs (like Schedule A or Box 17).

Thanks!

[DaveF1006]

TurboTax calculates Form 8960, Line 9b using a formula that considers the proportion of state, local, and foreign taxes relative to investment income. Specifically, it applies the ratio of total investment income to adjusted gross income (AGI) and multiplies it by the deductible state, local, and foreign taxes.

Regarding the SALT cap, TurboTax appears to use the actual deductible amount from Schedule A, meaning it does not include amounts exceeding the $10,000 cap.  

If you're looking for official documentation within TurboTax, you may need to check  Form 8960 Worksheet, which traces the source of the calculation.

How does TurboTax calculate Form 8960 Line 9B?

Computation of Form 8960 Line B