!

CAUTION

For line 4b adjustments, enter net positive amounts as a negative adjustment and enter net negative amounts as a positive adjustment.

In order to generally capture passive income from

TIP trades/businesses/farming that is subject to NIIT,

total income from Schedules C, E, and F (Form 1040) is entered on line 4a. Nonpassive income not subject to NIIT is entered as a negative amount on line 4b. Additionally, income entered on Schedules C, E, and F (Form 1040) that is not subject to self-employment tax under section 1401(b) is also entered as a negative on line 4b. Note also additional adjustments to total line 4a income that are detailed under line 4b.

Conversely, a total loss comprised of both passive and nonpassive income is entered as a negative on line 4a. Nonpassive losses entered on Schedules C, E, and F (Form 1040) are added back as income on line 4b. See Section 1411 NOL for information about figuring the allowed loss, if any, for NII purposes.

Line 4b—Adjustment for Net Income or Loss Derived in the Ordinary Course of a Non-Section 1411 Trade or Business or Otherwise Excepted

Use line 4b to adjust the amounts included on line 4a, for gains and losses that are excluded from the calculation of NII. Enter the amount of gains (as a negative number) and losses (as a positive number). Enter the net positive or net

• Net income that’s been recharacterized as not from a passive activity under the section 469 passive loss rules and is derived in the ordinary course of a section 162 trade or business, for example:

1. Net rental income or loss from a rental that meets an exception under Regulations section 1.469-1T(e)(3)(ii), the activity rises to a section 162 trade or business, and you materially participated in the activity; or

2. Net income from property rented to a nonpassive activity. See Special Rules for Certain Rental Income , earlier.

Note: Any income from an estate or trust reported in Part III of Schedule E (Form 1040) that excluded NII is taken into account on line 7. Don’t report those adjustments on line 4b.

Lines 5a–5d—Gains and Losses on the Dispositions of Property Generally, net gain from the disposition of property not used in a trade or business and net gain or loss from the disposition of property held in a section 1411 trade or business are included in NII if included in taxable income.

Gains and losses that aren’t taken into account in computing taxable income aren’t taken into account in computing NII. For example, gain that isn’t taxable by reason of section 121 (sale of a principal residence) or section 1031 (like-kind exchanges) isn’t included in NII. However, gains from the sale of investment real estate,

8 Instructions for Form 8960 (2025)

including a second home that is not a qualified principal residence under section 121, is subject to NIIT.

See the Lines 5a–5d—Net Gains and Losses Worksheet, in these instructions, for assistance in calculating net gain or loss includible in NII.

Line 5a—Net Gain or Loss From Disposition of Property

Calculate and enter the amount of net gain or loss from the disposition of property by combining the following amounts from your properly completed return.

• Adjustments to your capital loss carryforwards for items of excluded loss. See Adjustments to your capital loss carryforwards , later.

Substantially appreciated property. If an interest in property is substantially appreciated at the time of disposition (fair market value exceeds 120% of the adjusted basis), any gain from the disposition is treated as nonpassive, unless the interest in property was used in a passive activity for either:

1. 20% of the total period during which you held the interest in property, or

2. The entire 2-year period ending on the date of the disposition.

• Form 1040 or 1040-SR, line 7a, and Schedule 1 (Form 1040), line 4.

• Form 1041, lines 4 and 7.

• Form 1041-QFT, line 3, and the portion of line 4 attributed to ordinary gain/(loss).

• Form 1040-NR, the amounts properly reported on the attachment to your Form 1040-NR representing the amounts that you would enter on Form 1040 or 1040-SR, line 7a, and Schedule 1 (Form 1040), line 4, if you were filing Form 1040 or 1040-SR and including net gain or loss only for your period of U.S. residency.

See Special computational rules for qualified funeral trusts (QFTs) and Dual-status individual , earlier.

Note: If you incur gain or loss from a disposition that isn’t reported as described in the previous paragraph, report it on line 7. See Line 7—Other Modifications to Investment Income, later.

Line 5b—Net Gain or Loss From Disposition of Property That Isn’t Subject to Net Investment Income Tax

Use line 5b to adjust the amounts included on line 5a for gains and losses that are excluded from the calculation of NII. Enter the amount of gains (as a negative number) and losses (as a positive number) included on line 5a that are excluded from NII. For example, line 5b will include amounts such as the following.

See Regulations section 1.469-2(c)(2)(iii). The recharacterized gain may be taken into account under section 1411(c)(1)(A)(iii) if the gain is attributable to the disposition of property and recharacterized as portfolio income.

Net gain attributable to Net Unrealized Appreciation (NUA) in employer securities held by a qualified plan. Any gain attributable to NUA (within the meaning of section 402(e)(4)) that you realize on a disposition of employer securities held by a qualified plan is a distribution within the meaning of section 1411(c)(5) and isn’t included in NII. However, any gain realized on a disposition of employer securities attributable to appreciation in the value of your employer securities after the distribution from a qualified plan isn’t a distribution within the meaning of section 1411(c)(5) and is included in NII.

Shareholders of CFCs and QEFs without a section 1.1411-10(g) election. In the case of a QEF (other than a QEF held in a section 1411 trade or business) for which a section 1.1411-10(g) election isn’t in effect, enter the amount treated as long-term capital gain for regular income tax purposes under section 1293(a)(1)(B).

Also, in the case of a disposition of a CFC or QEF (other than a CFC or QEF held in a section 1411 trade or business) for which a section 1.1411-10(g) election isn’t in effect, enter the increase or decrease in the amount of gain or loss for NIIT purposes over the amount of gain or loss for regular income tax purposes. However, if the gain is higher (or the loss larger) for NIIT purposes compared to regular income tax purposes, in which case there’s no impact to the adjustment for capital loss carryforwards for NIIT purposes, enter the difference on line 6.

• Gain or loss from the sale of property held in a non-section 1411 trade or business.

1. However, if the losses are attributable to formerly suspended passive losses of the non-section 1411 trade or business, such gains and losses are excluded from NII to the extent the nonpassive income from the non-section 1411 trade or business is excluded from NII. See Regulations section 1.1411-4(g)(8) for more information and examples.

Adjustments to your capital loss carryforwards. Starting in 2014, capital loss carryforwards must be adjusted if any sum of all capital gain or loss amounts excluded from NII on lines 5b and 5c was a net loss (the sum of all excluded capital losses was greater than the sum of all excluded capital gains). Generally, the annual adjustment to your capital losses carryforward is the lesser of:

2. Gain or loss from the sale of property held in a non-section 1411 trade or business doesn’t include substantially appreciated property that’s recharacterized as portfolio income. See Substantially appreciated property , later.

• Gain attributable to net unrealized appreciation (NUA) in employer securities held by a qualified plan. See Net gain attributable to Net Unrealized Appreciation (NUA) in employer securities held by a qualified plan , later.

• The amount of your capital loss carryforward from the previous year (the sum of carryforward amounts reflected on Schedule D (Form 1040), Capital Gains and Losses, lines 6 and 14); or

• The amount of excluded capital losses in excess of excluded capital gain in the previous year.

Instructions for Form 8960 (2025) 9

Lines 5a–5d—Net Gains and Losses Worksheet

10 Instructions for Form 8960 (2025)

Lines 5a–5d—Net Gains and Losses Worksheet— (continued)

Instructions for Form 8960 (2025) 11

See the Lines 5a–5d—Net Gains and Losses Worksheet, in these instructions, for assistance with the calculation of capital loss carryforwards. In addition, see Proposed Regulations section 1.1411-4(d)(4)(iii) for more information and a comprehensive example of the application of this rule.

Pass-through entities. If you hold an interest in a pass-through entity, the determination of whether a trade or business exists is made at that entity’s level.

Line 5c—Adjustment From Disposition of Partnership Interest or S Corporation Stock

Enter the amount from the worksheet for lines 5a–5d, line 3d. Attach a statement as described under Required statements , earlier, to your return for the year of the disposition.

Line 6—Adjustments to Investment Income for Certain CFCs and PFICs

If you own stock, directly or indirectly, in a CFC or PFIC (other than certain CFCs and PFICs held in a section 1411 trade or business or PFICs marked to market under a provision of Code chapter 1 other than section 1296), use line 6 for adjustments necessary to calculate your NII.

Income from investments in CFCs and PFICs is generally included in the calculation of NII and, in many cases, will be included (in whole or in part) on other lines of Form 8960. Generally, dividends from a CFC or PFIC that are included in your regular income tax base are included on Form 8960, line 2, and gains and losses derived from the stock of a CFC or PFIC that are included in your regular income tax base are generally included on Form 8960, line 5. Also, income derived from CFCs and certain PFICs you hold in a section 1411 trade or business is generally reported on Form 8960, line 4a.

Line 6 is used for adjustments that are the result of additional rules. These additional rules may apply when you own an interest in a CFC or PFIC and may require you to subtract or add amounts not otherwise included on Form 8960. These additional rules vary depending on the set of anti-deferral rules that apply to you for regular income tax purposes, and for CFCs and QEFs, and depending on whether you have a section 1.1411-10(g) election in effect for the CFC or QEF. For more information about determining the amount to report on line 6, see Regulations section 1.1411-10.

Section 1296 mark-to-market PFICs. Generally, if you’re subject to the section 1296 mark-to-market rules for a PFIC, you’ll include in NII any amounts included in income for regular income tax purposes under section 1296(a)(1) and deduct from NII any amounts deducted from income for regular income tax purposes under section 1296(a)(2). Use line 6 to make increases or decreases to NII as a result of this rule (for items that aren’t otherwise reflected on Form 8960).

Section 1291 funds. If you’re subject to the section 1291 rules for a PFIC, you’ll include in NII any “excess distributions that are dividends for NIIT purposes as well

as any gains that are treated as excess distributions for regular income tax purposes.” Use line 6 to make the increases to NII as a result of the application of this rule (for items that aren’t otherwise reflected on Form 8960).

CFCs and QEFs with a section 1.1411-10(g) election in effect. If you have a section 1.1411-10(g) election in effect for a CFC or QEF, you’ll include in NII any inclusions under section 951(a), 951A, or 1293(a) derived from the CFC or QEF. Inclusions under section 1293(a)(1)(B) may be reported elsewhere on Form 8960, such as on line 5a. Use line 6 to make the increases to NII as a result of the application of this rule (for items that aren’t otherwise reflected on Form 8960).

Note: If you included in income an amount under section 951(a) or section 1293(a) for a CFC or QEF in 2013 and made an election under section 1.1411-10(g) after 2013 for that CFC or QEF, special rules may apply to certain distributions of previously taxed income from the CFC or QEF that aren’t subject to regular income tax. For more information, see Regulations section 1.1411-10.

CFCs and QEFs without a section 1.1411-10(g) elec- tion in effect. If you don’t have a section 1.1411-10(g) election in effect for a CFC or QEF, you’ll generally include in NII certain distributions of previously taxed income from the CFC or QEF that aren’t subject to regular income tax. In addition, other special rules may apply, including rules that provide, as applicable, alternative basis calculations for your basis in the CFC or QEF, or your basis in a domestic partnership or S corporation that owns the interest in the CFC or QEF. Also, the amount of investment interest expense you take into account for NIIT purposes may be increased or decreased from the amount taken into account for regular income tax purposes. (For additional information on all of these rules, see Regulations section 1.1411-10.) As a result of these rules, you may need to include amounts in NII that aren’t otherwise reported on Form 8960 or make adjustments to amounts reported elsewhere on Form 8960. For example, you may need to include distributions from a CFC or QEF in NII. Use line 6 to make increases or decreases to NII as a result of the application of this rule (for items that aren’t otherwise reflected on Form 8960).

Note: Use line 5b to deduct inclusions under section 1293(a)(1)(B) that are allowed on line 5a, or to adjust the amount of gain or loss derived from the disposition of shares of a CFC or QEF. However, if the gain included in NII is higher than the amount reported for regular income tax (or the loss is greater), report the adjustment on line 6.

Note: Even if you don’t have a section 1.1411-10(g) election in place for a CFC or QEF, there are certain instances in which distributions to you from the CFC or QEF may not be subject to NIIT. For example, if a prior holder of the CFC or QEF had made a section 1.1411-10(g) election for that CFC or QEF and you receive a distribution of earnings and profits that were previously included in the NII of the prior holder, you may not be subject to NIIT on that distribution. For more information, see Regulations section 1.1411-10.

12 Instructions for Form 8960 (2025)

Line 7—Other Modifications to Investment Income

Use line 7 to report additional NII modifications to NII that aren’t otherwise specified on lines 1–6. For example, use line 7 to report additions and modifications to NII, such as the following.

• Section 1411 net operating loss (NOL) (enter as a negative amount). See Section 1411 NOL, later.

• Any deductions described in section 62(a)(1) that are properly allocable to a passive activity or trading business, but aren’t taken into account on line 4a or 5a (enter as a negative amount). See Other section 62(a)(1) deductions , later.

• Adjustments for distributions from estates and trusts. See Distributions from estates and trusts, later.

• Section 404(k) dividends reported on line 2 (enter as a negative amount). See Line 2—Ordinary Dividends , earlier.

• Interest income reported on line 1 received from certain nonpassive activities (entered as a negative amount). See Self-charged interest, later.

• Recoveries of deductions taken on a prior year’s Form 8960. See Deduction recoveries, later.

• Other items of NII (or properly allocable deductions) not otherwise included on Form 8960 reported on Schedule 1 (Form 1040), line 8z; Form 1041, line 8; Form 1041-QFT, lines 4 and 9; and Form 1040-NR, amount on statement reporting tax items for your period of U.S. residency corresponding to Schedule 1 (Form 1040), line 8z. For example, these items could include the following.

1. Amounts reported on Form 8814, Parents’ Election To Report Child’s Interest and Dividends, line 12. See Form 8814 election , later.

2. Substitute interest and dividend payments (generally reported on Form 1099-MISC, Miscellaneous Information).

3. Net positive periodic payments received from a notional principal contract (NPC) that’s referenced to property (including an index) that produces (or would produce, if the property were to produce income) interest, dividends, royalties, or rents. For example, an interest rate swap, cap, or floor and an equity swap would be treated as an NPC that produces NII.

• Gains and losses from the disposition of property not included on line 5a that are taken into account in computing taxable income, for example:

1. Gain or loss from the disposition of an annuity or life insurance contract (see Line 3—Annuities, earlier); and

2. Casualty and theft losses reported on Schedule A (Form 1040), Itemized Deductions, line 15 (enter as a negative amount). However, gains and losses attributable to assets held in a non-section 1411 trade or business aren’t included in NII. For more information, see Line 5b—Net Gain or Loss From Disposition of Property That Isn’t Subject to Net Investment Income Tax , earlier.

Other section 62(a)(1) deductions. Use line 7 to report additional deductions attributable to a section 1411 trade or business that aren’t included on lines 4–6. Generally, these deductions are above-the-line deductions reported on Schedule 1 (Form 1040), lines 11–25. Similar section 62(a) deductions more directly related to investment

income are addressed in Part II, and Line 9c Miscellaneous Investment Expenses , later.

Note: Expenses associated with the trade or business of trading in financial instruments or commodities that are not reflected on line 4a, from your Schedule C (Form 1040), are reported on Form 8960, line 10, as an adjustment or modification. See Special rule for traders in financial instruments or commodities , later.

Note: Early withdrawal penalty (Schedule 1 (Form 1040), line 18) is reported on Form 8960, line 10.

Form 8814 election. Parents electing to include their child’s dividends and capital gain distributions in their income by filing Form 8814 must include on Form 8960, line 7, the amount on Form 8814, line 12, excluding Alaska Permanent Fund Dividends.

Distributions from estates and trusts. Enter the amount from box 14, code H, of Schedule K-1 (Form 1041), Beneficiary’s Share of Income, Deductions, Credits, etc.

Note: If the amount reported in box 14, code H, of Schedule K-1 (Form 1041) is a positive number, enter it on Form 8960, line 7, and increase your MAGI on Form 8960, line 13 (or Form 8960, line 19a), by the same amount.

If the amount reported in box 14, code H, of Schedule K-1 (Form 1041) is a negative number, and the trust has indicated some (or all) of the adjustment also requires a MAGI adjustment, enter it on Form 8960, line 7, and make the applicable increase or decrease to your MAGI on Form 8960, line 13 (or Form 8960, line 19a), as necessary.

Section 1411 NOL. If you are allowed an NOL deduction under section 172 for purposes of determining your regular income tax, you may also be allowed some, or all, of the NOL deduction in computing NII. Because NOLs are computed and carried over year by year, you must determine for each NOL year what portion of the NOL is attributable to NII. To determine how much of the accumulated NOL you can use in the current tax year as a deduction against your NII, you must first calculate your applicable portion of the NOL for each loss year. For more information and examples on the calculation of a section 1411 NOL and its use, see Regulations section 1.1411-4(h).

Note: No portion of an NOL incurred in a tax year beginning before 2013 is permitted to reduce NII.

Calculating your section 1411 NOL. In any tax year in which a taxpayer incurs an NOL, the section 1411 NOL is the lesser of:

• The amount of the NOL for the loss year the taxpayer would incur if only items of gross income that are used to determine NII and only properly allocable deductions (other than a section 1411 NOL) are taken into account in determining the NOL under section 172, or

• The amount of the taxpayer’s NOL for the loss year.

For purposes of calculating the section 1411 NOL,

TIP compute your NOL using Form 172, Net

Operating Losses (NOLs), with only items of income, gain, loss, and deduction on Form 8960 for that

Instructions for Form 8960 (2025) 13

Example: Calculation of Section 1411 NOL for NIIT

Assume an unmarried individual incurs the following NOLs and has waived any potential carryback for each passing year under section 172(b)(3), and assume that carryforwards are not limited:

(C) Applicable portion of NOL NOL origination year (A) Regular income tax NOL (B) Section 1411 NOL

[column B divided by column A]

2020 Calendar year $150,000 None 0.00%

2021 Calendar year $100,000 $30,000 30.0%

2022 Calendar year $40,000 $40,000 100%

2023 Calendar year $120,000 $60,000 50.0%

Beginning in 2024, the unmarried individual begins to use the NOLs to offset income.

Tax year NOL origination year Regular income Applicable portion Section 1411 NOL

2024 Tax Year $300,000

2020 NOL ($150,000) 0.00% None

2021 NOL ($100,000) 30.0% ($30,000)

2022 NOL ($40,000) 100.0% ($40,000)

2023 NOL ($10,000) 50.0% ($5,000)

Total section 1411 NOL allowed as deduction against 2024 net investment income . . . . . . . . . . . . . . ($75,000)

In 2024, the regular income tax NOLs from 2020–2023 have caused the taxpayer’s AGI ($0) to fall below the statutory threshold; therefore, the individual isn’t subject to the NIIT.

Tax year NOL origination year Regular income Applicable portion Section 1411 NOL

2025 Tax Year $600,000

2023 NOL ($110,000) 50.0% ($55,000)

Total section 1411 NOL allowed as deduction against 2025 net investment income . . . . . . . . . . . . . . ($55,000)

In 2025, the regular income tax NOL remaining from 2023 has reduced the taxpayer’s income for regular income tax to $490,000. The individual is entitled to reduce NII by $55,000 (entered as a negative amount on Form 8960, line 7).

year. If this amount is less than your NOL computed for regular income tax purposes, then this amount is the applicable portion of your NOL. If this amount is equal to, or greater than, your NOL computed for regular income tax purposes, then your applicable portion is 100% of the regular income tax NOL (which means the entire NOL will be deductible in computing NII when the NOL is used for regular income tax purposes).

Using your section 1411 NOL. When you deduct an NOL that originated in a previous year against the current-year income, a portion of the NOL may be deductible in computing NII for the current year, regardless of whether you’re subject to the NIIT in the current year without the NOL deduction. The amount of the regular income tax NOL used in calculating NII is called the applicable portion. The applicable portion is the percentage of the regular income tax NOL that’s a section 1411 NOL. Because NOLs are calculated on a year-by-year basis, the applicable portion of each NOL that’s used in the current year may be different.

Note: If you incurred an NOL after 2012 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 amount of section 1411 NOL that was included in the NOL carryback would’ve been used (as an applicable portion) even though the NIIT wasn’t in effect.

See Example: Calculation of Section 1411 NOL for NIIT, in these instructions, for an illustration of the calculation and use of a section 1411 NOL for NIIT purposes.

Deduction recoveries. A recovery or refund of a previously deducted item increases NII in the year of the recovery. There are two exceptions to this general rule.

Generally, for purposes of determining the gross amount of the recovery, include the recovery of any amount that was deducted in a prior year, regardless of the application of the tax benefit rule (see section 111). For example, if a taxpayer receives a refund of state income taxes from a prior year, such a refund would be included in the taxpayer’s gross income. However, if the taxpayer was subject to the alternative minimum tax in the year of the payment, the taxpayer may not have received any tax benefit under chapter 1 of the Code, and therefore section 111 may exclude some or all of the refund from

14 Instructions for Form 8960 (2025)

gross income. However, the deductibility of state income taxes for NIIT is independent of the taxes for alternative minimum tax purposes. Therefore, the applicability of the recovery rule is determined without regard to whether the recovered amount was excluded from gross income by reason of section 111.

There are two exceptions to including recovered amounts in NII. The two exceptions apply the tax benefit rule of section 111 within the NIIT system, and therefore operate independently of the application of section 111 for Code chapter 1 purposes. First, properly allocable deductions aren’t reduced in the year of the recovery if the amount deducted in the prior year didn’t reduce the amount of section 1411 liability. Second, properly allocable deductions aren’t reduced in the year of the

Line 7—Deduction Recoveries Worksheet

recovery if the amount deducted in the prior year is included in NII.

Note: The total amount of recovery reported on Form 8960, line 7, can’t exceed the total amount of properly allocable deductions for the year.

If the recovered amount relates to a deduction

TIP taken in a tax year beginning before 2013, none of

the recovery is included in NII in the year of recovery.

If the recovered amount relates to a deduction

TIP taken in a tax year beginning after 2012 and you

weren’t subject to the NIIT because your MAGI (see Line 13—Modified Adjusted Gross Income (MAGI) , later, was below the applicable threshold on line 14, then

Instructions for Form 8960 (2025) 15

none of the recovery is included in NII in the year of recovery. However, this rule doesn’t apply if you incurred an NOL in the year of the deduction, and a portion of your NOL is a section 1411 NOL.

TIP

If the recovered amount is included in NII on lines 1–6, none of the recovery is included in NII on line 7.

See Regulations section 1.1411-4(g)(2) for more information and examples. See the Line 7—Deduction Recoveries Worksheet, in these instructions, to determine the amount of any recovery to include on line 7.

In the case of multiple recoveries in a single year,

TIP complete this worksheet for each recovery. If

multiple recoveries relate to a single deduction year, the amount reported on lines 8 and 9 of the first recovery worksheet will become lines 7 and 10, respectively, on the second recovery worksheet.

Self-charged interest. The self-charged interest rules under section 469 (passive activity loss limitation) apply to lending transactions between a taxpayer and a pass-through entity in which the taxpayer owns a direct or indirect interest, or between certain pass-through entities. The section 469 self-charged interest rules apply only to items of interest income and interest expense that are recognized in the same tax year. The self-charged interest rules:

• Treat certain interest income resulting from these lending transactions as passive activity income,

• Treat certain deductions for interest expense that are properly allocable to the interest income as passive activity deductions, and

• Allocate the passive activity gross income and passive activity deductions resulting from this treatment among the taxpayer’s activities.

The rules for computing NII adopt a similar rule for self-charged interest. See Regulations section 1.1411-4(g)(5). Include on line 7 (as a negative amount) the amount of interest income you received that’s equal to the amount of interest income that would’ve been considered passive income under the self-charged interest rules (Regulations section 1.469-7) had the nonpassive activity been considered a passive activity.

Note: This rule doesn’t apply to interest received on loans made to a trade or business engaged in the trading of financial instruments or commodities.

Note: Don’t include any adjustment for interest income on line 7 (as a negative amount) if the corresponding interest deduction is also taken into account in determining your self-employment income that’s subject to tax under section 1401(b).