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Gary is a married individual with $400,000 of Adjusted Gross Income without including his share of...

Gary is a married individual with $400,000 of Adjusted Gross Income without including his share of income from the ABC trading partnership. His share of the partnership income is: $35,000 of interest income, $65,000 of dividend income and $100,000 of long-term capital gains. He and his wife have no other investment income. How much will his net investment income tax be?

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Answer #1

Answer -

Step - (1) - Information Given -

Gary is a married individual with $400000 of Adjusted Gross Income without including his share of income from the ABC trading partnership.

His share of the partnership income is: $35000 of interest income, $65000 of dividend income and $100000 of long-term capital gains.

He and his wife have no other investment income.

.

Step - (2) - Relevant Notes on Net Investment Income -

Note -(1) - Net Investment Income generally includes net income from, taxable interest, dividends, capital gains.

Note -(2) - Net investment income is subject to a 3.8% tax and applies to individuals.

  • This 3.8% tax will be applied to the lesser of -
    • ​​​​​​​​​​​​​​​​​​​​​Either their net investment income, or
    • The amount by which their modified adjusted gross income exceeds the statutory threshold amount.

Note -(3) - The statutory threshold amounts are:

  • Married filing jointly — $250000
  • Married filing separately — $125000

​​​​​​​.

Step - (3) - Calculation of Gary's net investment income tax -

A). Tax filing status - Married filing jointly.

B).- Net investment income = Interest income + dividend income + long-term capital gains.

= $35000 + $65000 + $100000

= $200000

C).- Modified adjusted gross income -

= Adjusted Gross Income without including Net investment income + Net investment income

= $400000 + $200000

= $600000

D). Modified adjusted gross income exceeding the statutory threshold limit by -

= Modified adjusted gross income - Statutory threshold amount

= $600000 - $250000

= $350000

Therefore,

Gary's net investment income tax

= 3.8% tax on lesser of B or D

= 3.8% * $200000

= $7600

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