---
title: Net Investment Income Surtax
description: Net Investment Income Surtax
image: https://info.ongandcompany.com/hubfs/NII%20Surtax.jpg
---

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# Net Investment Income Surtax

[Richard Ong](https://info.ongandcompany.com/blog/author/richard-ong) / May 29, 2019 /

[Tax Planning](https://info.ongandcompany.com/blog/topic/tax-planning)

![](https://app.hubspot.com/settings/avatar/89ca6f67445537c2c631f1fe9d43c977)

The new tax legislation enacted late in 2017 rewrites large sections of the tax code. However, one key provision for investors has remained in place: the tax on net investment income (NII). Although it's still on the books, you can minimize the impact for this year with some timely tax action.

**NII tax background**

Generally, the NII tax is equal to 3.8 percent of the lesser of your NII or excess modified adjusted gross income (MAGI) over an annual threshold of $200,000 for single filers ($250,000 for joint filers).

NII includes most investment income items like interest and dividends, capital gains and gains from investments in passive activities. But certain other items — such as distributions from IRAs and qualified retirement plans and income from an active business — are specifically excluded from this calculation.

**How to reduce NII tax**

Even if the tax applies in your situation, you may minimize the tax damage by reducing NII, MAGI or both. Consider these ideas:

- Increase contributions to qualified retirement plans like a 401(k).
- Harvest capital losses to offset high-taxed capital gains.
- Postpone large capital gains to a future year.
- Invest in municipal bonds ("munis") or muni bond funds that produce tax-free income.
- Switch from dividend-paying stocks to growth stocks you can hold until you're in a low tax year.
- Set up a charitable remainder trust (CRT) that provides an income stream with tax benefits.
- Arrange a tax-free like-kind exchange of real estate instead of realizing a large capital gain.
- Sell real estate on the installment basis.
- Shift high-taxed income to family members in lower tax brackets.

Of course, other financial factors may affect these strategies.

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