Application — Instruction 8960 — Instructions for Form

Domestic estates and trusts. The NIIT applies to estates and trusts that have undistributed NII and adjusted gross income (AGI) in excess of the threshold amount. The NIIT is 3.8% of the lesser of:

Example. For 2025, a QFT has a beneficiary contract with $16,000 of interest income and another beneficiary contract with $21,000 of dividend income. Neither contract has any properly allocable deductions. The threshold amount for the 2025 tax year is $15,650. Therefore, the QFT has two beneficiary contracts with NII in excess of the threshold amount for the year.

The QFT will report $16,000 on line 1 (interest) and $21,000 on line 2 (dividends). Lines 12, 18a, and 19 would each be $37,000 ($16,000 plus $21,000). Enter “2” on the dotted line at the end of line 19b and enter $31,300 ($15,650 × 2) on the entry line for 19b. Lines 19c and 20 will be $5,700 ($37,000 less $31,300). On line 21, enter the NIIT liability of $216.60 ($5,700 × 3.8% (0.038)).

Common trust funds.

Special computational rules for qualified funeral trusts (QFTs). The NIIT applies to the QFT (as defined in section 685) by treating each beneficiary’s interest in that beneficiary’s contract as a separate trust. Complete one consolidated Form 8960 for all beneficiary contracts subject to NIIT.

If a QFT has one or more beneficiary contracts that have NII in excess of the threshold amount:

Complete Form 8960, lines 1–12, using only the sum of the NII of the beneficiary contracts that have NII in excess of the threshold amount; and
On line 19b:

Insert the number of beneficiary contracts that have NII in excess of the threshold amount next to the entry on the line, and
Multiply the number of beneficiary contracts that have NII in excess of the threshold amount by the threshold amount for the year and enter that amount on line 19b.

The undistributed NII for the tax year; or
The excess, if any, of AGI (as defined in section 67(e)) over the applicable threshold amount.

The applicable threshold amount is the dollar amount at which the highest tax bracket in section 1(e) begins for the tax year. See the instructions for Form 1041, Schedule G, line 1a, and the instructions for Form 1041-QFT, line 12, for the dollar amount at which the highest tax bracket begins for the tax year.

Special computational rules for electing small busi- ness trusts (ESBTs). The NIIT has special computational rules for ESBTs. In general, ESBTs compute their NIIT in 3 steps.

Exception for certain domestic trusts. The following trusts aren’t subject to the NIIT.

Trusts that are exempt from income taxes imposed by subtitle A of the Internal Revenue Code.

Charitable trusts and qualified retirement plan trusts exempt from tax under section 501.
The ESBT separately calculates the undistributed NII of the S portion and non-S portion according to the general rules for trusts under chapter 1 of the Code, and then combines the undistributed NII of the S portion and the non-S portion. In the case of an ESBT that has an S portion and a non-S portion, complete lines 1–11 of Form 8960 using the items from the non-S portion, and add undistributed NII of the S portion to NII on line 7.
Charitable remainder trusts exempt from tax under section 664.

A trust or decedent’s estate in which all of the unexpired interests are devoted to one or more of the purposes described in section 170(c)(2)(B).

The ESBT determines its AGI, solely for purposes of NIIT, by adding the net income or net loss from the S portion to the AGI of the non-S portion as a single item of income or loss. See the instructions for Line 19a for more information.

Trusts that are classified as “grantor trusts” under sections 671–679.
Electing Alaska Native Settlement Funds (described in section 646).
Perpetual care (cemetery) trusts (described in section 642(i)).
Trusts that aren’t classified as “trusts” for federal income tax purposes, for example:

To determine whether the ESBT is subject to NIIT, the ESBT compares the combined undistributed NII with the excess of its AGI over the section 1(e) threshold.

For an ESBT with only S corporation income (no

TIP non-S portion), complete Form 8960 using the

items from the S portion. For ESBTs with an S portion and a non-S portion, use Form 8960 as a worksheet for calculating the amounts to enter on line 7 and line 19a. On the S portion’s Form 8960 worksheet,

Real estate investment trusts, and

Instructions for Form 8960 (2025) 3

enter the S portion’s NII on line 7 of the trust’s Form 8960 and combine line 19a of the Form 8960 worksheet with the non-S portion’s AGI to arrive at the amount on line 19a.

See Regulations section 1.1411-3(c) for more details and examples.

Special computational rules for bankruptcy estates of an individual. A bankruptcy estate of an individual debtor is treated as an individual for purposes of the NIIT. Regardless of the actual marital status of the debtor, the applicable threshold for purposes of determining the NIIT is the amount applicable for a married person filing separately.

Distributions from foreign estates and foreign trusts. If you’re a U.S. person who receives a distribution of income from a foreign estate or foreign trust, you must generally include the distribution in your NII calculation to the extent that the income is included in your AGI for regular income tax purposes. However, you don’t need to include any distributions of accumulated income that you receive from a foreign trust.

Note: The NIIT doesn’t apply directly to foreign estates or foreign trusts.