makbo wrote:The result I want is to conclude that deductions under NIIT, which is a different code chapter (2A) from regular tax, are not affected by TCJA changes to Chapter 1.
That would be nice, but how do you overcome the following?
- Section 1411(c)(1)(B) provides that net investment income is computed after subtracting "the deductions
allowed by this subtitle which are properly allocable to such gross income or net gain."
- Section 164(a)(3) provides that "State and local, and foreign, income, war profits, and excess profits taxes" are "
allowed as a deduction for the taxable year within which paid or accrued"
- Section 164(b)(6)(B) provides that "the aggregate amount of
taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return)."
Taking these three points together, I conclude the following:
1. In order to be deductible against investment income for purposes of the NIIT, a deduction must be allowed by subtitle A.
2. In order to be a deduction allowed by subtitle A, a state income tax must be taken into account under paragraph (3) of section 164.
3. In order to be taken into account under paragraph (3) of section 164, a state income tax must not cause the aggregate of the state and local taxes taken into account under section 164 to exceed $10,000 ($5,000 in the case of a married individual filing a separate return).