--- title: What is the Net Investment Income Tax & How Does It Affect Capital Gains? description: Learn more about what the net investment income tax is & how it affects capital gains image: https://www.realized1031.com/hubfs/iStock-2199592601-modified-35b54aaf-cdc6-4c80-a171-2438422cc9bc.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # What is the Net Investment Income Tax & How Does It Affect Capital Gains? Posted Nov 6, 2025 ![iS-2199592601](https://www.realized1031.com/hs-fs/hubfs/iStock-2199592601-modified-35b54aaf-cdc6-4c80-a171-2438422cc9bc.jpg?width=1254&height=705&name=iStock-2199592601-modified-35b54aaf-cdc6-4c80-a171-2438422cc9bc.jpg) As an investment property owner, understanding various taxes that impact your returns is crucial. One such tax is the Net Investment Income Tax (NIIT), which can significantly affect your capital gains and overall investment strategy. ### Understanding the Net Investment Income Tax (NIIT) Instituted as part of the Health Care and Education Reconciliation Act of 2010, the Net Investment Income Tax (NIIT) is a 3.8% surtax on certain types of investment income. It includes interest, dividends, rental and royalty income, non-qualified annuities, income from businesses involved in financial instrument or commodity trading, and capital gains. The primary aim of the NIIT is to help fund the Affordable Care Act, although its revenues are not specifically earmarked for health care expenses. ### Who is Subject to the NIIT? The NIIT applies to taxpayers with a Modified Adjusted [Gross Income ](https://www.realized1031.com/blog/do-short-term-capital-gains-count-towards-adjusted-gross-income-agi)(MAGI) above specific thresholds. For single filers, the threshold is $200,000, while for married couples filing jointly, it is $250,000. Consequently, if your income surpasses these levels, you might have to pay the 3.8% tax on your net investment income or the amount by which your MAGI exceeds the threshold—whichever is less. ### How NIIT Affects Capital Gains [Capital gains ](https://www.realized1031.com/blog/strategies-for-handling-capital-gains-after-selling-a-business)are a significant concern for investment property owners. When you sell an asset such as real estate or stocks at a profit, this profit is considered a capital gain. For tax purposes, capital gains are categorized as either short-term or long-term. Long-term capital gains (from assets held for more than a year) are taxed at a lower rate than ordinary income, while short-term gains are taxed at ordinary income rates. If your MAGI is over the aforementioned thresholds, your capital gains could be subject to the NIIT, adding an additional 3.8% tax on top of your regular capital gains tax. Therefore, effective tax planning is essential to minimize the impact on your returns. ### Strategies to Mitigate the NIIT For savvy investors, there are strategies to mitigate the NIIT. One popular method is leveraging a 1031 Exchange, which allows you to defer paying capital gains taxes (and consequently the NIIT) by reinvesting proceeds from a sold property into a new, like-kind property. This strategy not only defers capital gains but can also help lower your MAGI temporarily. Additionally, structuring your income to stay below the [NIIT](https://www.realized1031.com/blog/how-to-calculate-net-income-investment-tax-niit) threshold could be beneficial. This might involve timing asset sales to spread out capital gains over multiple years or strategically allocating income to family members in lower tax brackets. ### Conclusion The impact of the NIIT on your capital gains can be significant, increasing the overall tax burden on your investment income. Understanding how this tax works and employing effective strategies can help minimize its effect. It’s always wise to consult with a tax advisor to ensure that your investment strategies align with your financial goals and to explore all available avenues for tax efficiency. By staying well-informed and planning proactively, you can protect and potentially enhance your investment returns. Download The Capital Gains Tax Calculator [![Cap Gains Calculator For Investors](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/laptop-capital-gains-calculator-spreadsheet.jpg?width=500&height=290&name=laptop-capital-gains-calculator-spreadsheet.jpg "Estimate the cap gains tax owed ...") ](https://www.realized1031.com/blog/what-is-the-net-investment-income-tax-how-does-it-affect-capital-gains#blogform) Download Calculator ---   --- ### Cap Gains Calculator For Investors ![Download The Capital Gains Tax Calculator](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/laptop-capital-gains-calculator-spreadsheet.jpg?width=500&height=290&name=laptop-capital-gains-calculator-spreadsheet.jpg) Estimate the cap gains tax owed after selling an asset or property By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. Search ### [Why Realized](https://www.realized1031.com/why-realized) - [Wealth Management](https://www.realized1031.com/the-wealth-management-gap) - [Why Realized](https://www.realized1031.com/why-realized) - [Our Process](https://www.realized1031.com/how-realized-works) - [Scenarios](https://www.realized1031.com/scenarios) - [Private Client Program](https://www.realized1031.com/private-client) - [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services) ### [The Company](https://www.realized1031.com/about-us) - [The Team](https://www.realized1031.com/about-us) - [FAQ](https://www.realized1031.com/frequently-asked-questions) - [Testimonials](https://www.realized1031.com/testimonials) - [Press](https://www.realized1031.com/press) - [Careers](https://www.realized1031.com/careers) ### [Partners](https://www.realized1031.com/partners) - [Financial Advisors](https://www.realized1031.com/advisor) - [Broker Dealers](https://www.realized1031.com/partners/broker-dealers) - [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents) - [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants) ### [Resources](https://www.realized1031.com/resources) - #### Learn - [Articles](https://www.realized1031.com/blog) - [Glossary of Terms](https://www.realized1031.com/glossary) - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate) - #### Watch - [Video Library](https://www.realized1031.com/videos) - [Webinar Archive](https://www.realized1031.com/webinars) - #### Read - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust) - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic) - [1031 Exchange](https://www.realized1031.com/1031-exchange) - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones) #### Realized - 500 W 13th Street Austin, TX 78701 - (877) 797-1031 ##### [Contact Us](https://www.realized1031.com/contact-us) - [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/) - [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/) - [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1) - [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick) - [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org) SECURITIES DISCLOSURE Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "As an investment property owner, understanding various taxes that impact your returns is crucial. One such tax is the Net Investment Income Tax (NIIT), which can significantly affect your capital gains and overall investment strategy. Understanding the Net Investment Income Tax (NIIT) Instituted as part of the Health Care and Education Reconciliation Act of 2010, the Net Investment Income Tax (NIIT) is a 3.8% surtax on certain types of investment income. It includes interest, dividends, rental and royalty income, non-qualified annuities, income from businesses involved in financial instrument or commodity trading, and capital gains. The primary aim of the NIIT is to help fund the Affordable Care Act, although its revenues are not specifically earmarked for health care expenses. Who is Subject to the NIIT? The NIIT applies to taxpayers with a Modified Adjusted Gross Income (MAGI) above specific thresholds. For single filers, the threshold is $200,000, while for married couples filing jointly, it is $250,000. Consequently, if your income surpasses these levels, you might have to pay the 3.8% tax on your net investment income or the amount by which your MAGI exceeds the threshold—whichever is less. How NIIT Affects Capital Gains Capital gains are a significant concern for investment property owners. When you sell an asset such as real estate or stocks at a profit, this profit is considered a capital gain. For tax purposes, capital gains are categorized as either short-term or long-term. Long-term capital gains (from assets held for more than a year) are taxed at a lower rate than ordinary income, while short-term gains are taxed at ordinary income rates. If your MAGI is over the aforementioned thresholds, your capital gains could be subject to the NIIT, adding an additional 3.8% tax on top of your regular capital gains tax. Therefore, effective tax planning is essential to minimize the impact on your returns. Strategies to Mitigate the NIIT For savvy investors, there are strategies to mitigate the NIIT. One popular method is leveraging a 1031 Exchange, which allows you to defer paying capital gains taxes (and consequently the NIIT) by reinvesting proceeds from a sold property into a new, like-kind property. This strategy not only defers capital gains but can also help lower your MAGI temporarily. Additionally, structuring your income to stay below the NIIT threshold could be beneficial. This might involve timing asset sales to spread out capital gains over multiple years or strategically allocating income to family members in lower tax brackets. Conclusion The impact of the NIIT on your capital gains can be significant, increasing the overall tax burden on your investment income. Understanding how this tax works and employing effective strategies can help minimize its effect. It’s always wise to consult with a tax advisor to ensure that your investment strategies align with your financial goals and to explore all available avenues for tax efficiency. By staying well-informed and planning proactively, you can protect and potentially enhance your investment returns.", "articleSection" : [ "Capital Gains" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2025-11-06T15:00:02+0000", "datePublished" : "2025-11-06T15:00:02+0000", "description" : "Learn more about what the net investment income tax is & how it affects capital gains", "headline" : "What is the Net Investment Income Tax & How Does It Affect Capital Gains?", "image" : { "@type" : "ImageObject", "height" : 705, "url" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/iStock-2199592601-modified-35b54aaf-cdc6-4c80-a171-2438422cc9bc.jpg", "width" : 1254 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/what-is-the-net-investment-income-tax-how-does-it-affect-capital-gains", "name" : "What is the Net Investment Income Tax & How Does It Affect Capital Gains?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/iStock-2199592601-modified-35b54aaf-cdc6-4c80-a171-2438422cc9bc.jpg" } ```