§1411 — Title 26 Internal Revenue Code | U.S. Code

Summary

A 3.8% tax must be paid on certain investment income for people and for estates or trusts. For an individual, the tax is 3.8% of the smaller amount of either (1) your “net investment income” for the year, or (2) the part of your modified adjusted gross income that is over a set threshold. For an estate or trust, the tax is 3.8% of the smaller amount of either the undistributed net investment income, or the amount by which the estate’s or trust’s adjusted gross income is over the dollar where the highest individual tax bracket begins that year. Net investment income means income like interest, dividends, annuities, royalties, rents, some business income from passive activities or trading in financial instruments, and certain capital gains, minus the deductions related to that income. The “threshold” is $250,000 for joint filers or surviving spouses, $125,000 for married people filing separately, and $200,000 for everyone else. Modified adjusted gross income is your adjusted gross income plus certain foreign earned income exclusions after related adjustments. The tax does not apply to nonresident aliens or to trusts used only for certain charitable purposes.

Title 26, §1411

Internal Revenue Code — Source: USLM XML via OLRC

(a)Except as provided in subsection (e)—

(1)In the case of an individual, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax equal to 3.8 percent of the lesser of—

(A)net investment income for such taxable year, or

(B)the excess (if any) of—

(i)the modified adjusted gross income for such taxable year, over

(ii)the threshold amount.

(2)In the case of an estate or trust, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax of 3.8 percent of the lesser of—

(A)the undistributed net investment income for such taxable year, or

(B)the excess (if any) of—

(i)the adjusted gross income (as defined in section 67(e)) for such taxable year, over

(ii)the dollar amount at which the highest tax bracket in section 1(e) begins for such taxable year.

(b)For purposes of this chapter, the term “threshold amount” means—

(1)in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000,

(2)in the case of a married taxpayer (as defined in section 7703) filing a separate return, ½ of the dollar amount determined under paragraph (1), and

(3)in any other case, $200,000.

(c)For purposes of this chapter—

(1)The term “net investment income” means the excess (if any) of—

(A)the sum of—

(i)gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2),

(ii)other gross income derived from a trade or business described in paragraph (2), and

(iii)net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2), over

(B)the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.

(2)A trade or business is described in this paragraph if such trade or business is—

(A)a passive activity (within the meaning of section 469) with respect to the taxpayer, or

(B)a trade or business of trading in financial instruments or commodities (as defined in section 475(e)(2)).

(3)A rule similar to the rule of section 469(e)(1)(B) shall apply for purposes of this subsection.

(4)In the case of a disposition of an interest in a partnership or S corporation—

(A)gain from such disposition shall be taken into account under clause (iii) of paragraph (1)(A) only to the extent of the net gain which would be so taken into account by the transferor if all property of the partnership or S corporation were sold for fair market value immediately before the disposition of such interest, and

(B)a rule similar to the rule of subparagraph (A) shall apply to a loss from such disposition.

(5)The term “net investment income” shall not include any distribution from a plan or arrangement described in section 401(a), 403(a), 403(b), 408, 408A, or 457(b).

(6)Net investment income shall not include any item taken into account in determining self-employment income for such taxable year on which a tax is imposed by section 1401(b).

(d)For purposes of this chapter, the term “modified adjusted gross income” means adjusted gross income increased by the excess of—

(1)the amount excluded from gross income under section 911(a)(1), over

(2)the amount of any deductions (taken into account in computing adjusted gross income) or exclusions disallowed under section 911(d)(6) with respect to the amounts described in paragraph (1).

(e)This section shall not apply to—

(1)a nonresident alien, or

(2)a trust all of the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B).

Notes & Related Subsidiaries

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 111–152, title I, § 1402(a)(4), Mar. 30, 2010, 124 Stat. 1063, provided that: “The

Amendments

made by this subsection [enacting this chapter and amending section 6654 of this title] shall apply to taxable years beginning after December 31, 2012.”

§1411 Imposition of tax