I still say the full amount of state income tax is available to be allocated to NII, not just $10K.
Consider:
1) the Form 8960 form and instructions nowhere refer to the the $10K SALT limit. If it was the IRS' position that SALT limit applied to NIIT calculation as well, surely they would have stated in the instructions something like "the amount of Line 9(b) due to state and local tax cannot exceed $10,000", but they didn't. Do you really think they are going to accept every return with a regular allocation on Line 9b, and then a year or two from now send out hundreds of thousands, or millions, of letters saying everyone needs to recalculate and pay more tax because the amount they deducted on Line 9b should never have exceeded $10K?
2) Thomson Reuters UltraTax latest version allows the full amount prior to calculating the allocation to NII. (my previous post with a sample UT calculation was still using a 2017 version of the allocation worksheet, it has been updated since then - but they never took the $10K SALT limit into account for NII purposes, even in earlier versions).
3) posts #2 and #3 agree it is all available for allocation, not just $10K.
4) The form instructions state, "State, local, and foreign income taxes if properly deducted on your return when calculating your U.S. regular income tax.". Well, the full amount of state tax was properly deducted (and officially disclosed per regulation) on Schedule A, but because of TCJA it was simply not "taken into account" for purposes of Sec 164. "Not taken into account" is not the same thing as "disallowed". (I am rejecting the implication I was pondering in my post #13).
Jeff-Ohio writes, "The actual heading in that NIIT regulation, under (f)(3), is “Properly allocable deductions described in Section 63(d).” Then when you go there, you’ll see that it says, “deductions allowable under this chapter.”"
And Section 63 is part of Chapter 1, while NIIT is part of Chapter 2A -- totally separate for this purpose. And I don't think the word "described" automatically includes all limitations that are elsewhere applied to items that are here only "described".