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than your NOL computed for regular

Example Calculation of Section 1411 NOL for NIIT

income tax purposes, then this amount is

Assume an unmarried individual incurs the following NOLs:

the applicable portion of your NOL. If this

amount is equal to, or greater than, your

NOL computed for regular income tax

(A) Regular Income

purposes, then your applicable portion is

NOL Origination Year

(B) Section 1411 NOL

of NOL [Column B

Tax NOL

divided by Column A]

100% of the regular income tax NOL

(which means the entire NOL will be

2014 Calendar Year

$150,000

None

0.00%

deductible in computing net investment

2015 Calendar Year

$100,000

$30,000

30.0%

income when the NOL is used for regular

income tax purposes).

2016 Calendar Year

$40,000

100%

2017 Calendar Year

$120,000

$60,000

50.0%

Using your section 1411 NOL.

When you deduct an NOL that originated

in a previous year against the current year

Beginning in 2018, the unmarried individual begins to use the NOLs to offset his income:

income, a portion of the NOL will be

deductible in computing net investment

NOL Origination

Regular

Applicable

Section 1411

income for that year, regardless of

Tax Year

Year

Income

Portion

NOL

whether you’re subject to the NIIT in that

year without the NOL deduction. The

2018 Tax Year

$300,000

amount of the regular income tax NOL

2014 NOL

($150,000)

0.00%

None

used in calculating net investment income

is called the “applicable portion.” The

2015 NOL

($100,000)

30.0%

($30,000)

applicable portion is the percentage of the

2016 NOL

($40,000)

100.0%

($40,000)

regular income tax NOL that’s a section

1411 NOL. Because NOLs are calculated

2017 NOL

($10,000)

50.0%

($5,000)

on a year-by-year basis, the applicable

Total Section 1411 NOL allowed as deduction against 2018 net

portion of each NOL that’s used in the

($75,000)

investment income

current year may be different.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

In 2018, the regular income tax NOLs from 2014–2017 has caused the taxpayer’s AGI ($0)

Note. If you incurred an NOL after 2012

to fall below the statutory threshold, therefore the individual isn’t subject to the NIIT.

and carried back that NOL to offset

income in years preceding the imposition

of the NIIT (for example, a carryback to

calendar year 2011 and/or 2012), the

NOL Origination

Regular

Applicable

Section 1411

amount of section 1411 NOL that was

Tax Year

Year

Income

Portion

NOL

included in the NOL carryback would’ve

been used (as an applicable portion) even

2019 Tax Year

$600,000

though the NIIT wasn’t in effect.

2017 NOL

($110,000)

50.0%

($55,000)

See

Example Calculation of Section

Total Section 1411 NOL allowed as deduction against 2019 net

1411 NOL for

NIIT, in these instructions,

($55,000)

investment income

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

for an illustration of the calculation and use

of a section 1411 NOL for NIIT purposes.

In 2019, the regular income tax NOL remaining from 2017 has reduced the taxpayer’s

income for regular income tax to $490,000. The individual is entitled to reduce his net

Deduction recoveries. A recovery or

investment income by $55,000 (entered as a negative amount on Form 8960, line 7).

refund of a previously deducted item

increases net investment income in the

year of the recovery. There are 2

exceptions to this general rule.

may also be allowed to deduct some, or

Calculating your section 1411 NOL.

all, of the NOL in computing net

In any tax year in which a taxpayer incurs

Generally, for purposes of determining

investment income. Because NOLs are

an NOL, the section 1411 NOL is the

the gross amount of the recovery, include

computed and carried over year by year,

lesser of:

the recovery of any amount that was

you must determine for each NOL year

The amount of the NOL for the loss

deducted in a prior year, regardless of the

what portion of the NOL is attributable to

year the taxpayer would incur if only items

application of the tax benefit rule (see

net investment income. To determine how

of gross income that are used to

section 111). For example, if a taxpayer

much of the accumulated NOL you can

determine net investment income and only

receives a refund of state income taxes

use in the current tax year as a deduction

properly allocable deductions (other than

from a prior year, such a refund would be

against your net investment income, you

a section 1411 NOL) are taken into

included in the taxpayer's gross income.

must first calculate your applicable portion

account in determining the NOL under

However, if the taxpayer was subject to

of the NOL for each loss year. For more

sections 172(c) and 172(d), or

the alternative minimum tax in the year of

information and examples on the

The amount of the taxpayer's NOL for

the payment, the taxpayer may not have

calculation of a section 1411 NOL and its

the loss year.

received any tax benefit under chapter 1

use, see Regulations section 1.1411-4(h).

of the IRC, and therefore section 111 may

For purposes of calculating the

exclude some or all of the refund from

section 1411 NOL, compute your

Note. No portion of an NOL incurred in a

TIP

gross income. However, the deductibility

NOL using Form 1045,

tax year beginning before 2013 is

of state income taxes for NIIT is

Application for Tentative Refund,

permitted to reduce net investment

independent of the taxes for alternative

Schedule A—NOL, with only items of

income.

minimum tax purposes. Therefore, the

income, gain, loss, and deduction on Form

applicability of the recovery rule is

8960 for that year. If this amount is less

determined without regard to whether the

Instructions for Form 8960 (2017)

-11-

Instructions For Form 8960 - Net Investment Income Tax - Individuals, Estates, And Trusts - 2017 Page 11

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