ExpertHard1 markMultiple Choice
CPA · Question 20 · Area IV: Individual Taxation
Regarding the Net Investment Income Tax (NIIT) under IRC §1411, which of the following items is included in 'Net Investment Income'?
Regarding the Net Investment Income Tax (NIIT) under IRC §1411, which of the following items is included in 'Net Investment Income'?
Answer options:
A.
Distributions from a qualified retirement plan (e.g., 401(k)).
B.
Interest, dividends, and royalties not derived from the ordinary course of a trade or business.
C.
Wages and self-employment income.
D.
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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