Some estates and trusts are impacted by NIIT. Trust and estate income above the annual exemption is subject to the tax. The 2016 tax year income threshold was $12,400 for estates and trusts. NIIT also applies to income above the threshold from interest and dividends, rental and royalty income, capital gains, net gains from property disposition, certain business income, and nonqualified annuities.
Since the NIIT became effective, several strategies have been implemented by taxpayers to minimize the impact of the surtax, including marriage delays, divorce, gifting, and Individual Retirement Account conversion avoidance. NIIT is calculated by Form 8960. Individuals report NIIT on Form 1040, while trusts and estate report NIIT on Form 1041.
If the proposals pass into law as they are currently written, the NIIT would be repealed effective December 31, 2017. NIIT would still apply to qualified income as described above for the 2017 tax year. Learn more about managing NIIT and contact a tax attorney to review estate or trust accountings and ways to minimize NIIT.