Proposed regulations clarify scope and application of new net investment income tax

December 2012


The IRS on November 30 issued proposed regulations concerning the net investment income tax under new section 1411 of the Internal Revenue Code, which was enacted as part of the Health Care and Education Reconciliation Act of 2010. The new tax will be imposed, at a 3.8% rate, on certain net investment income of individuals, estates, and trusts that have income above the statutory threshold amounts.

For individuals, the thresholds are $200,000 for single taxpayers, $125,000 for married taxpayers filing separately, and $250,000 for married taxpayers filing jointly.

Estates and trusts will be subject to the tax if they have undistributed net investment income and also have adjusted gross income (AGI) over the dollar amount at the highest tax bracket for an estate or trust.

With the new tax effective for tax years beginning after December 31, 2012, many taxpayers having been awaiting the guidance provided in the proposed regulations to clarify the scope and application of the new tax.

The IRS has requested public comments on the proposed regulations by March 5, 2013. A public hearing is scheduled for April 2, 2013.

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