ExpertMedium1 markMultiple Choice
CPA · Question 52 · Area I: Individual Compliance and Planning
A taxpayer is subject to the Net Investment Income Tax (NIIT). Their MAGI is $250,000 (Threshold $200,000). They have Net Investment Income (NII) of $40,000. What is the NIIT liability?
A taxpayer is subject to the Net Investment Income Tax (NIIT). Their MAGI is $250,000 (Threshold $200,000). They have Net Investment Income (NII) of $40,000. What is the NIIT liability?
Answer options:
A.
$1,900
B.
$1,520
C.
$0
D.
$9,500
How to approach this question
NIIT Formula: 3.8% * Lesser of (NII) or (MAGI - Threshold). <br/>NII = $40k. <br/>Excess MAGI = $250k - $200k = $50k. <br/>Lesser is $40k.
Full Answer
B.$1,520✓ Correct
$1,520
IRC §1411. Tax is 3.8% of the lesser of Net Investment Income or the excess of MAGI over the threshold. $40,000 < $50,000. $40,000 * 0.038 = $1,520.
Common mistakes
Applying tax to the excess MAGI when NII is lower.
Practice the full CPA TCP Practice Exam 2
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive receives an Incentive Stock Option (ISO) to purchase 1,000 shares of stoc...MediumQ02A taxpayer is calculating their Alternative Minimum Tax (AMT) liability for Year 1. They claimed ...MediumQ03On January 1, Year 1, a corporation lends $500,000 to a shareholder at a 0% interest rate. The Ap...HardQ04A U.S. citizen accepts a permanent assignment in France on January 1, Year 1. In Year 1, they ear...MediumQ05A 12-year-old child has $5,000 of interest income and no earned income in Year 1. The standard de...Medium