net investment income tax form 8960

[EdJ1]

This paragraph is  in the IRS literature:.

"In order to arrive at Net Investment Income, Gross Investment Income (items described in items 7-11 above) is reduced by deductions that are properly allocable to items of Gross Investment Income. Examples of deductions, a portion of which may be properly allocable to Gross Investment Income, include investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, tax preparation fees, fiduciary expenses (in the case of an estate or trust) and state and local income taxes".

It seems to indicate that you can deduct investment advisory fees and allocate state income taxes to reduce your net investment income tax ( 3.8%).  Problem is Turbo tax never asks me any questions regarding this area.  Right now I take the standard deduction but include state taxes and advisory fees  on schedule A anyway.  I don’t know whether it is a turbo tax problem or I am reading it incorrectly. You might be interested yourself also. 

[Anonymous_]

However, the following is also in the Form 8960 instructions (with a caution icon):

Miscellaneous itemized deductions suspended for tax years 2018 through 2025. Miscellaneous itemized deductions under section 67 are not allowed for tax years beginning after 2017 and before 2026. See section 67(g).

See https://www.irs.gov/instructions/i8960#idm139952759606896

Note that investment advisory fees are miscellaneous itemized deductions.

[EdJ1]

Hi thanks for getting right back. I see the caution note you mentioned however I don't see anything that elimnates  the deduction of allocated state and local income taxes. Am I missing something? thx again

[tacopa]

did you get an answer for this (from anywhere)...deducting state tax against Net Investment Income while taking standard deduction?

[Anonymous_]

According to the instructions:

Include state, local, and foreign income taxes you paid for the tax year that are attributable to net investment income......You can determine the portion of your state, local, and foreign income taxes allocable to net investment income using any reasonable method. 

See https://www.irs.gov/instructions/i8960#idm139952759584096

[LRC11]

Yes, that's right, but I cannot figure out how to get that information into TT.

Do I have to switch to forms and enter it directly?

[Anonymous_]

@LRC11 

Yes, there is no screen in Step-by-Step that can handle this issue; you need to use Forms Mode.

[LRC11]

I am trying to fix this by filing an amended return. TT will not allow me to enter any numbers in form mode on the amended return.

[LRC11]

And as I recall, I could not enter it on forms when originally filing, either (that's why I skipped it and figured I would have to file amendment)

[Anonymous_]

I believe the only solution is Forms Mode and an override (note that the latter will invalidate the TurboTax accuracy guarantee).

[LRC11]

 There is a TT oversight regarding form 8960.   TT does not reduce your investment income by state and local taxes when calculating the investment surcharge.    You can do it manually and in certain situations, it will reduce the surtax you owe.

To enter the state/local  investment taxes on form 8960:  You'll have to determine the investment portion of your state taxes then switch to TT "forms" mode (there is no interactive screen for this).   Right click on line 9b and select source.  This will show you the worksheet  that feeds into 8960 and show you the  specific line in the worksheet you need to complete.   

If you have trouble entering the correct data into the worksheet, you can right click and select override, but an override should not be necessary if you adjust the worksheet.

This method works for TT 2020 download premier.    Be aware TT does not provide much guidance about 8960 or an interactive screen to correct the worksheet.   I recommend reading the IRS regulations or consulting an expert if you are not familiar with the rules around 8960 and how to determine state/local investment taxes.  The IRS suggests using any "reasonable method".

[vogelwk]

How about this for a reasonable method: Calculated State Income tax both with and without Investment Income and use the difference as the amount of State Income tax allocatable to Investment Income. The trouble is getting that number into TT without overridding the entry for Form 8960 line 9b. I get an Smart Check Error that say I will not be able to File Electronically. I would think that TT could run the above method algorithmically allowing the error check to work. Also the 'Form 8960 Wks' wasn't any help with this. 

[jk2151]

This is still wrong for 2021 filing - how do we fix this using online TT?

Do we really have to file an amended paper return to get this right?

[jk2151]

state tax reduction of NII was correct in 2018 but wrong in 2019 - 2021

is TT ever going to fix this?

how do i escalate?

[64dancer]

I went through all this last year. Only way to enter 9b if taking standard deduction is with downloaded version of TT (not online). You can then enter your 9b. By doing so, however, TT will not let you efile. You must mail in your taxes because they do not support this entry. I have spoken to several people who say it is a legal entry. Guess TT just doesn't want to deal with it. 

9b is calculated by (Interest + Ordinary Dividends + Capital Gains) / AGI x State Tax paid in tax year*

  This result is limited to $10,000.

You can also use the allocable amount of Foreign Income Taxes IF you did not take a tax credit for them.

*Both tax from your W-2 and Tax paid for last year's taxes less sales & use tax if you have it.

Then next year, you have to do a deduction recovery on 8960, line 7. That's what I am trying to figure out and no one seems to be able to help.