Regarding the Net Investment Income Tax (NIIT) under IRC §1411, which of the following items is included in 'Net Investment Income'?

Answer options:

Distributions from a qualified retirement plan (e.g., 401(k)).

Interest, dividends, and royalties not derived from the ordinary course of a trade or business.

Wages and self-employment income.

Tax-exempt municipal bond interest.

How to approach this question

NIIT targets 'passive' investment income. Excludes: Active business income, Wages, Retirement distributions, Tax-exempt interest.

Full Answer

B.Interest, dividends, and royalties not derived from the ordinary course of a trade or business.✓ Correct

Net Investment Income includes interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. It specifically excludes distributions from qualified retirement plans (IRC §1411(c)(5)) and tax-exempt interest.

Common mistakes

Including IRA/401k distributions in NIIT.

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