The 3.8% Net Investment Income Tax (NIIT) is easy to overlook because it is not in the headline capital gains brackets - but for higher earners it quietly raises the top federal long-term rate from 20% to 23.8%.
The thresholds
| Filing status | MAGI threshold |
|---|---|
| Single | $200,000 |
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Head of household | $200,000 |
These have not changed since 2013. They are not indexed to inflation, so each year more taxpayers cross them.
How much you actually pay
The NIIT applies to the smaller of two numbers: your net investment income, or the amount your modified AGI exceeds the threshold.
Example: A single filer with $180,000 of wages and a $50,000 long-term gain has MAGI of $230,000 - $30,000 over the $200,000 threshold. The NIIT applies to $30,000 (not the full $50,000): 3.8% x $30,000 = $1,140, on top of the regular capital gains tax.
Planning around it
Because the tax only hits income above the threshold, spreading large gains across multiple years - or pairing them with tax-loss harvesting - can keep you under the line. Gains excluded from income, such as those within the home-sale exclusion, are not net investment income and escape the NIIT entirely.
Read the full NIIT explainer and estimate your own exposure in the calculator, which builds the NIIT in automatically.
General information, not tax advice. Verify with the IRS or a tax professional.