The Net Investment Income Tax (NIIT) is a 3.8% surtax on investment income — interest, dividends, capital gains, rental income, and royalties — that applies when your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly).
The tax applies to the lesser of your net investment income or the amount your MAGI exceeds the threshold. You can mitigate it by reducing MAGI through Roth conversion timing, shifting income character with municipal bonds, or recharacterizing passive activity as active. Coordinated planning across your portfolio can help manage exposure.
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