Net Investment Income Tax

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Net Investment Income Tax is a 3.8% U.S. tax on certain investment income when a taxpayer’s modified adjusted gross income exceeds the threshold for their filing status. For U.S. expats, it can apply to foreign dividends, interest, capital gains, rental income, royalties, and passive business income.

Why it matters for U.S. expats

Net Investment Income Tax can apply even when investment income comes from outside the United States, is held in a foreign account, or has already been taxed abroad. It also uses a modified adjusted gross income calculation that can add back Foreign Earned Income Exclusion amounts, so expats with high earned income abroad and foreign investments may still cross the NIIT threshold.

Common questions

1. What income is subject to Net Investment Income Tax?

Net investment income can include interest, dividends, capital gains, rental income, royalty income, nonqualified annuities, and passive business income.

2. What income is not subject to Net Investment Income Tax?

Wages, self-employment income, Social Security benefits, alimony, tax-exempt interest, and distributions from certain qualified retirement plans are not net investment income.

3. What is the Net Investment Income Tax rate?

The Net Investment Income Tax rate is 3.8%.

4. What are the Net Investment Income Tax thresholds?

The thresholds are $200,000 for single and head of household filers, $250,000 for married filing jointly and qualifying surviving spouse, and $125,000 for married filing separately. These thresholds are not indexed for inflation.

5. How is Net Investment Income Tax calculated?

The tax applies to the lesser of net investment income or the amount by which modified adjusted gross income exceeds the filing-status threshold.

6. Does the Foreign Earned Income Exclusion reduce Net Investment Income Tax?

Not necessarily. For NIIT, modified adjusted gross income adds back certain income excluded under the Foreign Earned Income Exclusion, so claiming Form 2555 may not keep a taxpayer below the NIIT threshold.

7. Does the Foreign Tax Credit reduce Net Investment Income Tax?

No. The Foreign Tax Credit reduces regular income tax, but it does not reduce Net Investment Income Tax.

8. Can foreign investment income trigger Net Investment Income Tax?

Yes. Foreign dividends, interest, capital gains, rental income, royalties, and passive income can be included in net investment income when the taxpayer is above the threshold.

9. Can foreign rental property trigger Net Investment Income Tax?

Yes. Foreign rental income can be net investment income unless the rental activity is treated as nonpassive under the applicable rules.

10. Can the sale of foreign real estate trigger Net Investment Income Tax?

Yes. A taxable gain from selling foreign real estate can be included in net investment income. Gain excluded under the main home exclusion is not included.

11. Do nonresident aliens pay Net Investment Income Tax?

No. Nonresident aliens are not subject to NIIT. Special rules can apply when a nonresident alien spouse makes an election to be treated as a U.S. resident for joint filing.

12. What form is used to report Net Investment Income Tax?

Form 8960 is used to calculate and report Net Investment Income Tax.

Related forms

• Form 8960: Net Investment Income Tax
• Form 1040: U.S. Individual Income Tax Return
• Schedule D: Capital Gains and Losses
• Schedule E: Supplemental Income and Loss
• Form 2555: Foreign Earned Income Exclusion
• Form 1116: Claiming the Foreign Tax Credit

When to get help

Professional guidance is important when:

• You have foreign dividends, interest, capital gains, rental income, royalties, or passive business income.
• You claim the Foreign Earned Income Exclusion and are close to the NIIT threshold.
• You sold foreign real estate, foreign investments, or a foreign business interest.
• You have foreign rental property or passive activity income.
• You paid foreign tax and expected the Foreign Tax Credit to remove all U.S. tax.
• You file jointly with a nonresident alien spouse or have dual-status issues.
• You need to coordinate Form 8960 with Form 1116, Form 2555, Schedule D, or Schedule E.

Bright!Tax can calculate whether NIIT applies, identify foreign investment income included in the calculation, and coordinate Form 8960 with the rest of your U.S. expat tax return. Get started with Bright!Tax.

Related Bright!Tax guides

• U.S. tax reporting requirements for expats with foreign investments
• Foreign Tax Credit vs. Foreign Earned Income Exclusion
• Foreign Earned Income Exclusion guide

Official sources

• IRS: Questions and answers on the Net Investment Income Tax
• IRS: About Form 8960
• IRS: Instructions for Form 8960
• Cornell Legal Information Institute: 26 U.S. Code § 1411

Reviewed by

Katelynn Minott, CPA & CEO

Last reviewed

July 2026