The IRS finally released its eagerly awaited final instructions for Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, on Thursday. The instructions, which are 20 pages (for a one-page form), were released in draft form in the beginning of January. Practitioners and taxpayers have waited almost a month after the official (delayed) start of tax season (Jan. 31) for the final version. Many tax preparation companies have held returns with this form until the final instructions were released, and this means these returns can now be filed.
Form 8960 is a dual-purpose form that is used by both individuals and trusts and estates to compute the new 3.8% net investment income tax and then to report the tax on Forms 1040, U.S. Individual Income Tax Return, and 1041, U.S. Income Tax Return for Estates and Trusts.
Starting this filing season, Sec. 1411(a)(1) imposes a tax equal to 3.8% of the lesser of an individual’s net investment income for the tax year or the excess (if any) of the individual’s modified adjusted gross income for the tax year over a threshold amount. The threshold amounts are $250,000 for married taxpayers filing jointly and surviving spouses, $125,000 for married taxpayers filing separately, and $200,000 for other taxpayers. The tax also applies to estates and trusts, with different threshold amounts.
On Form 8960, taxpayers calculate total investment income and total deductions and modifications (such as investment interest expense and state taxes) to arrive at net investment income. The form provides separate tax calculations for individuals and for trusts and estates. Individuals report the net investment income tax on line 60 of Form 1040; trusts and estates will report it on Schedule G, line 4, of Form 1041.