Like many Americans living abroad you may be interested to learn the Net Investment Income Tax (NIIT) may be repealed at the end of 2017. Two proposals released by the Joint Committee on Taxation in March 2017 advise removal of the 3.8 percent NIIT which has been in effect since 2013. This tax has effectively represented a very real additional tax burden for a number of our US clients based in London, remembering that NIIT cannot be used to offset/reduce UK taxes.
Some estates and trusts are impacted by NIIT. Trust and estate income above the annual exemption is subject to the tax. The 2016 tax year income threshold was $12,400 for estates and trusts. NIIT also applies to individuals whose income is above the threshold from interest and dividends, rental and royalty income, capital gains, net gains from property disposition, certain business income, and non-qualified annuities.
We have helped a number of our clients to mitigate the impact of this surtax through marriage delays, divorce, gifting, and Individual Retirement Account planning. NIIT is calculated using Form 8960. Individuals report NIIT on Form 1040, while trusts and estates report NIIT on Form 1041.
If the proposals pass into law as they are currently written, the NIIT would be repealed effective December 31, 2017.
If you would like to learn more about managing NIIT, please contact us.