How is the amount on Form 8960, section 9b computed?

[manca1]

I get some inconsistent results in different tax software. SALT is capped to 10-40k, but looks like the amount used there is higher. Is that expected?

[DianeW777]

It depends. If you have SALT that is not related to any excluded income on your return, you will enter the full amount of your deduction from Schedule A.  To arrive at  net investment income (NII), items are reduced by deductions allowed against the income tax that are properly allocable to those items of gross income or net gain.

Line 9b - State, Local and Foreign Income Tax: You can determine the portion of your state, local, and foreign income taxes; state, local, and foreign real property taxes; as well as state and local personal property taxes allocable to NII using any reasonable method. See Reasonable method allocations, earlier.  

• Enter the amount of state, local, or foreign income taxes; state, local, and foreign real property taxes; as well as state and local personal property taxes on Form 8960, line 9b.

[manca1]

Thanks. The confusing part is that the SALT deduction is capped to $40k and then it phases out to $10k for AGIs over $500k, while the actual state/property taxes paid are greater than those capped amounts.

There are suggestions to calculate the ratio of Total Investment Income (Section 8, Form 8960) and modified AGI (Section 13) and multiply that with the total (not capped) state, local, property taxes paid (Section 5a, Schedule A). Looks like TurboTax applies that formula.

So the amount is (Section 8/Section 13, Form 8960) * Section 5a (Schedule A).

Is that correct?

[RobertB4444]

That is correct.

In future years, if you use the desktop version of TurboTax you can go into forms view and track all of the equations used in your tax return through the worksheets.

[kshah4turbotax]

Can we take Line 5d (instead of 5a) from Schedule A? That will add state income tax and property tax

[RobertB4444]

No.  Line 9b on form 8960 consists of "State, Local and Foreign income tax".  Property taxes are definitely not included in that amount.  

If you didn't pay any foreign income tax then schedule A line 5a is it.

[bja1044]

Robert,

IRC 164(a)(1) specifically lists state and local real property taxes as deductable.  Thus, Schedule A line 5 includes real property taxes.  Also, IRS 2025 Instructions for Form 8960 reinforces that property taxes should be included in the NIIT deduction as it says "Include state, local, and foreign income taxes you paid for the tax year that are attributable to NII. Include also state, local, and foreign real property taxes paid for the tax year, as well as state and local personal property taxes paid that are attributable to NII."  (See Instructions, p. 17).

If TurboTax is not including property taxes on the 8960 worksheet or in Line 9b, this appears to be wrong given the authority cited above.

How can this be resolved?  Can TurboTax update the desktop software regarding this?

[MarilynG1]

Property Tax is being included on the Form 8960 Worksheet, Line 5.  It's not being separately broken out as an adjustment on Line 9b.

@bja1044 

[bja1044]

Thank you.