Net investment income tax - investment expenses?

Technical topics regarding tax preparation.
#1
pj5150  
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Has anyone found anything that says the IRS may allow investment expenses in the calculation of the net investment income tax, even though the expenses are not allowed as a miscellaneous deduction? I saw that the draft Form 8960 has line 9c "miscellaneous investment expenses."

Thanks.
 

#2
Nilodop  
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Section 1411 was passed in 2010 and has not been amended.
 

#3
lucyko  
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I agree with Nilodop .

Further information on allowable deductions for the NIT can be found on page 12 of the 8960 instructions. We have had Net Investment Tax (NIT) for several years now and think these instructions should be considered final.

As you know, In the IRS hierarchy Pubs and Instructions are not authority . So for more detailed information about these deductions see Reg section 1.141-4(f) (g)

I believe, but not 100 % sure, is that these allowable deductions are still in place under the new tax law .

Maybe someone else will comment on this .
 

#4
WEISSEA  
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I saw that the draft Form 8960 has line 9c "miscellaneous investment expenses."


Still available for Trust/Estate 1041's
 

#5
Nilodop  
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I think what OP is getting at is that section 1411(c)(B) allows for NIIT
the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.
and 67(g), which suspends miscellaneous itemized deductions, is in the same subtitle as 67(g). So is suspending the same as not allowing?
 

#6
Jake  
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Would not net investment interest only come into play if a person itemized?
 

#7
lucyko  
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Yes your generally right but the topic being discussed is investment expenses not investment interest . There is a difference.
 

#8
Skatter  
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If miscellaneous investment expenses are allowed for 2018 returns, will the deduction limitations of secs. 67 and 68 still apply?
 

#9
Nilodop  
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The 1411 regs, as far as I know, have not changed, so let's look at them.

1.1411-1(f)
(3) Properly allocable deductions described in section 63(d). In determining net investment income, the following itemized deductions are taken into account:
***
(ii) Investment expenses . Investment expenses (as defined in section 163(d)(4)(C)).
***
(7) Application of limitations under sections 67 and 68 . Any deductions described in this paragraph (f) that are subject to section 67 (the 2-percent floor on miscellaneous itemized deductions) or section 68 (the overall limitation on itemized deductions) are allowed in determining net investment income only to the extent the items are deductible for chapter 1 purposes after the application of sections 67 and 68. For this purpose, section 67 applies before section 68. The amount of deductions subject to sections 67 and 68 that may be deducted in determining net investment income after the application of sections 67 and 68 is determined as described in paragraph (f)(7)(i) and (f)(7)(ii) of this section.

(It goes on from there in detail).

The preamble to those regs. contains some comments to consider.
D. Properly allocable deductions described in section 1411(c)(1)(b)

Section 1411(c)(1)(B) provides that net investment income includes deductions allowed by subtitle A that are properly allocable to gross income or net gain described in section 1411(c)(1)(A). Section 1.1411–4(f)(1)(i) of the proposed regulations provided that “[u]nless specifically stated otherwise, only properly allocable deductions described in this paragraph (f) may be taken into account in determining net investment income.” Specifically, proposed §1.1411–4(f)(3) provided that properly allocable deductions include: (A) investment interest expense, (B) investment expenses described in section 163(d)(4)(C), and (C) state, local, and foreign income taxes described in section 164(a)(3). The Treasury Department and the IRS intend this rule to limit the deductions against net investment income to those specifically enumerated in paragraph (f).
***
... the Treasury Department and the IRS acknowledge that flexibility is needed within §1.1411–4(f) so that future changes in law or circumstances can be more easily integrated into the regulations. Although the cross-references in §1.1411–4(f)(2) to deductions described in section 62(a) provide section 1411(c)(1)(B) flexibility to automatically take into account additions or changes to chapter 1 deductions attributable to trades or business, rents, and royalties, these regulations would have to be amended to expand properly allocable deductions in the event of such changes not captured by section 62(a)(1) or 62(a)(4). To strike a balance between the intent of the proposed rule (to provide a specific list of deductions to limit uncertainty and controversy) and the recognized value of future flexibility inherent in the commentators’ recommendation, §1.1411–4(f)(6) of the final regulations allows the Treasury Department and the IRS to publish additional guidance in the Internal Revenue Bulletin that expands the list of properly allocable deductions.
 

#10
pj5150  
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Thanks for the information - I guess investment expenses will still need to be input.
 

#11
Nilodop  
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Not so sure I read it that way. "Any deductions described in this paragraph (f) that are subject to section 67 (the 2-percent floor on miscellaneous itemized deductions) or section 68 (the overall limitation on itemized deductions) are allowed in determining net investment income only to the extent the items are deductible for chapter 1 purposes after the application of sections 67 and 68." Section 67(g) is part of section 67.
 

#12
pj5150  
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The draft form would not be correct then https://www.irs.gov/pub/irs-dft/f8960--dft.pdf?
 

#13
Nilodop  
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Yes, you mentioned that in OP.

One rationale is that the NIIT is a separate "regime" from the regular income tax.

And this Q&A IRS document claims it was last reviewed in June, 2018. https://www.irs.gov/newsroom/questions- ... income-tax. It agrees with the instructions:

13. What investment expenses are deductible in computing NII?

In order to arrive at Net Investment Income, Gross Investment Income (items described in items 7-11 above) is reduced by deductions that are properly allocable to items of Gross Investment Income. Examples of deductions, a portion of which may be properly allocable to Gross Investment Income, include investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, tax preparation fees, fiduciary expenses (in the case of an estate or trust) and state and local income taxes.
 


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