What triggers the 3.8% Net Investment Income Tax and how can I reduce it?

The Net Investment Income Tax (NIIT) is an extra 3.8% levied on the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds a threshold — $200,000 single, $250,000 married filing jointly. These thresholds are set by statute and are not indexed for inflation, so more people cross them each year. Net investment income includes interest, dividends, capital gains, rental and passive income, and annuity income, but not wages, Social Security, or retirement-account distributions. To reduce NIIT, focus on lowering MAGI or investment income: maximize pre-tax retirement contributions, harvest capital losses, hold assets in tax-advantaged accounts, use installment sales to spread gains, and consider tax-exempt municipal bond interest, which is excluded. Confirm the current thresholds and rules on irs.gov before planning.