Net Investment Income Tax 2026: A Year-End Planning Guide

For 2026, the net investment income tax (NIIT) may apply when a household has investment income and modified adjusted gross income above a filing-status threshold. It is not a tax on all income above that threshold. Before year-end, review realized gains, investment income, compensation events, and retirement decisions with a tax professional to understand which items matter in your circumstances.

What is the net investment income tax in 2026?

Under the IRS guidance available as of September 26, 2026, the NIIT for individuals is 3.8% of the lesser of net investment income or the amount by which modified adjusted gross income (MAGI) exceeds the applicable filing-status threshold. This is a separate calculation from regular income tax. Having MAGI above a threshold alone does not mean that every dollar of income is subject to NIIT. The IRS describes the tax as applying to individuals with both income over the threshold and net investment income. See IRS Topic No. 559.

For NIIT purposes, MAGI is generally regular adjusted gross income, with an adjustment for certain excluded foreign earned income. A tax professional should check the calculation rather than assume it is the same as taxable income. The rules for estates and trusts differ from the individual thresholds above. Source: IRS Topic No. 559.

Which income items belong in a year-end discussion?

The IRS says net investment income generally includes taxable interest, dividends, certain annuity income, royalties, rents, and net gains from property sales, subject to exclusions and applicable deductions. Income from a passive business activity and gains on some business interests may also require review. The nature of the activity and how the gain is recognized matter. Source: IRS Topic No. 559.

Wages and active-business income generally are not themselves net investment income. Yet a compensation event or business transaction can change MAGI, which is the other side of the NIIT calculation. For an executive with equity compensation, or an owner anticipating a sale, it is worth asking a tax professional to separate income that enters net investment income from income that changes MAGI. The classification of a specific transaction is not automatic. Source: IRS Topic No. 559.

The IRS also excludes from net investment income certain items such as tax-exempt interest and the portion of a gain on a principal residence that is excluded from regular income tax. Not every capital gain or business receipt is treated alike. A preparer needs the complete facts, including basis and the nature of any business activity. Source: IRS Topic No. 559.

Why can timing and account type matter?

When a gain is recognized in a taxable account, its timing can affect net investment income and MAGI in the relevant tax year. A decision to realize a loss may also require a broader review of available gains, account activity, costs, and tax rules. Our guide to direct indexing and tax-loss harvesting discusses those trade-offs. A transaction should not be made solely on an assumed NIIT result; the effect depends on the full return and investment considerations. Source: IRS Form 8960 instructions (latest published edition shown on the IRS site is for 2025).

According to the IRS, distributions from certain qualified retirement plans are excluded from net investment income, but a taxable distribution or conversion can still affect MAGI. That distinction matters when discussing retirement decisions alongside taxable investment income. The treatment of a particular account and transaction requires a review by a tax professional. Source: IRS Form 8960 instructions (2025 edition, current IRS publication as of September 26, 2026).

A coordinated review brings investment management, tax planning, and tax preparation into the same conversation. At United Financial Planning Group, these services are available under one roof. The aim is to make sure the people reviewing investment transactions and preparing the return are working from the same facts, not to promise a particular tax outcome.

Form 8960: the NIIT filing reference

The IRS uses Form 8960, Net Investment Income Tax: Individuals, Estates, and Trusts, to calculate NIIT. The IRS instructions currently available (2025 edition, checked September 26, 2026) say to attach Form 8960 to the return if MAGI exceeds the applicable threshold; the final tax calculation depends on net investment income as well. Individuals report the tax on Form 1040 or Form 1040-SR, according to IRS Topic No. 559. Check the IRS Form 8960 page and the eventual 2026 instructions with your preparer when filing your 2026 return rather than using a prior-year form as final 2026 filing guidance.

The IRS notes that withholding and estimated payments may need review when NIIT creates additional tax liability. Whether a change is appropriate depends on the full-year projection and payment history. Source: IRS Topic No. 559.

2026 year-end questions to bring to your tax professional

• Based on our expected 2026 filing status and MAGI, should we review NIIT exposure under the IRS individual thresholds?
• Which interest, dividends, rents, annuity amounts, and realized gains belong in our net investment income calculation, and which deductions or exclusions are relevant? IRS NIIT overview
• Do equity compensation, a business-interest transaction, or retirement distributions change MAGI even if the proceeds are not themselves net investment income? IRS Form 8960 instructions
• What are the tax and investment trade-offs of any contemplated taxable-account sale, including realized losses, before taking action? Read the taxable-account planning guide.
• Should our withholding or estimated payments be reviewed in light of the entire 2026 return? IRS reporting and payment guidance
• When filing, which version of Form 8960 and its instructions applies to our 2026 return?

These are questions for a household-specific review, not a checklist of transactions to complete. Tax treatment varies with filing status, activity, account structure, deductions, and other facts. A qualified tax professional should evaluate your circumstances before any tax or investment decision.

Update note: Prepared September 26, 2026 using the IRS sources linked above. Review the IRS's published 2026 Form 8960 materials when available, and revisit this tax-year-specific article before using it for a later tax year.

Let's Start With a Conversation. No sales pitch. No obligation. Contact United Financial Planning Group if you would like to discuss how your financial planning, investment decisions, and tax preparation fit together.

Disclosures

This article is for general educational purposes only and is not individualized tax or investment advice. NIIT treatment depends on your complete tax circumstances and may change with law or IRS guidance. No action discussed here is assured to reduce tax. Consult a qualified tax professional before acting. Investing involves risk, including potential loss of principal.