Does TurboTax take into account state taxes as an investment expense for Form 8960, Line 9b? The value calculated for my NIIT is for 3.8% of my total investment income.

[Jerry_F-_Korhone]

There should be a reduction in the NIIT for the state taxes allocable to the investment income, but the full value is being used for the NIIT calculation without any reductions.  Prior tax years have used a reduced value, but not for the 2018 reporting.

[Anonymous]

did you use the standard deduction in 2018

[Anonymous]

Why does that matter? The 8960 instructions do not say you have to be itemizing deductions to reduce your net investment income.

[rexium]

My understanding is that the line9b is allowed only when tax payer claims itemized deduction.
From instruction 8960 Reasonable method allocations, "State, local, and foreign income taxes IF PROPERLY DEDUCTED on your return when calculating your U.S. regular income tax."

Then, SALT ($10000) limits the line9b as well?
If my state tax is $15000 and claim itemized deduction, only $10000 can be allocated to NII?
It seems that turbotax doesn't limit the allocation by SALT

[woodward-apart]

Ever sort this out?  Whether NIIT SALT deduction is capped at $10k is controversial; see <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4688837-was-the-form-8960-worksheet-still-correct-after-tcja">http...

[harterpk]

I submit that the "IF PROPERLY DEDUCTED" is probably misapplied here.  This statement is in a section talking about ratios, i.e. "reasonable allocation," and could possibly be interpreted as indicated, but that seems a stretch.   There are explicit statements later about limiting the deduction based on sections 67 and 68 (both moot this year).  There should be a comparable clearer statement about itemization vs. standard deduction.  

[woodward-apart]

Looks like latest update of turbotax changes the calculation. They are capping SALT to $10k

[harterpk]

The SALT limitation of $10K (8960 worksheet Pt 2, 9b, line 5) is really not going to affect most folks.  Looks like they cap the REDUCTION in net investment income due to SALT at $10K, but after computing the ratio of gross to investment income, they include all of the SALT in computing the portion allocable to investment income.  This is what then is capped at $10K. Not an issue for me.

The more important issue is that TurboTax doesn't do any of this if it uses the standard deduction.

[rkrkrkCA]

I just updated, and TT is still including all of my SALT taxes on line 9b of 8960.  It is not limiting it to 10K.  My human tax adviser IS limiting it, so I'm still unsure which to believe.

[rkrkrkCA]

OK - now that I look more carefully, I see the earlier comment above - that the allocable taxes must be under 10k - not the amount on line of 9b.

[rk_tax]

I also think SALT upto 10k limit should be allowable in Line 9b of Form 8960 even if one takes standard deduction for regular tax. https://www.law.cornell.edu/cfr/text/26/1.1411-4 states that “Deductions allocable to both net investment income and excluded income. In the case of a properly allocable deduction described in section 1411(c)(1)(B) and paragraph (f) of this section that is allocable to both net investment income and excluded income, the portion of the deduction that is properly allocable to net investment income may be determined by taxpayers using any reasonable method.”

The "in case of..." does not apply if a person takes standard deduction for regular tax.

Nowhere can I find the clause that if you take standard deduction for regular tax then you cannot claim itemized for NIIT

[janashces]

Did you sort this out?