Does the 3.8% NIIT apply to capital gains when selling my primary residence?

The 3.8% NIIT (Net Investment Income Tax) does typically apply to capital gains from selling your primary residence, but only on the portion that exceeds the exclusion amount and only if your income is above certain thresholds. For the NIIT to apply, you need to have a Modified Adjusted Gross Income above $200,000 if filing single or $250,000 if married filing jointly. Since you mentioned your AGI is around $315k (filing single), you'll likely be subject to this tax. Here's how it would work in your case: You'd get the standard $250k exclusion (since you're single), and then the remaining $320k in capital gains would potentially be subject to both capital gains tax and the 3.8% NIIT. So you'd pay your regular capital gains rate (likely 20% given your income level) PLUS the additional 3.8% NIIT on that $320k.

I was in almost the exact same situation last year and found https://taxr.ai incredibly helpful for figuring out all the implications of selling my primary residence. I was also confused about the NIIT since I was selling a home I'd lived in for 7 years with about $275k in gains after the exclusion. The tool analyzed my situation and confirmed I would indeed have to pay the NIIT on top of capital gains tax. What was really helpful though was that it showed me some options for offsetting some of the gain by properly accounting for home improvements I'd made over the years. I had receipts for a kitchen remodel and bathroom upgrades that I could use to increase my basis and reduce my taxable gain.

I wanted to follow up about my experience with taxr.ai after my initial skepticism. I decided to give it a try with my own home sale situation, and I'm honestly surprised by how helpful it was. The analysis broke down exactly how the NIIT would apply to my gain above the exclusion amount. What really impressed me was that it flagged some capital losses from investments I had that could be used to offset some of the gain from my home sale. It also prompted me to look for documentation of home improvements that I hadn't even considered. Between those two things, I was able to reduce my taxable gain by almost $45,000! The tool even generated a report that I can give to my tax preparer explaining all the calculations.

If you're having trouble getting clear answers about the NIIT and home sales from the IRS website, you're definitely not alone. I spent WEEKS trying to call the IRS to get a straight answer about this exact situation. Always on hold forever, then disconnected. I finally used https://claimyr.com to get through to an actual IRS agent. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they wait on hold for you and call when an agent is available. The agent I spoke with confirmed that yes, the 3.8% NIIT does apply to capital gains from a primary residence that exceed the exclusion amount if your income is above the threshold.

I need to eat crow here. After my skeptical comment, I decided to try Claimyr because I was desperate about this IRS notice. It actually worked! Got a call back in about 2 hours and was connected with an agent who resolved my issue. While I had them on the phone, I also asked about the NIIT on home sales since I'm planning to sell next year. The agent confirmed what others have said here - the 3.8% NIIT does apply to gains above the exclusion amount ($250k/$500k) if your income exceeds the threshold ($200k single/$250k married). She also mentioned that home improvements can increase your basis and potentially reduce the taxable gain, so keep ALL receipts for major renovations.

One thing no one has mentioned yet is that there are ways to potentially avoid or reduce the NIIT impact when selling your primary residence. If you're planning ahead, you might consider: 1) Timing the sale in a year where your income is lower 2) Making larger retirement contributions to reduce your MAGI 3) Selling in installments over multiple tax years 4) Doing a 1031 exchange if you're planning to buy another property (though there are strict rules for primary residences) I sold my house last year with a $400k gain after exclusions, and by maxing out my 401k, HSA, and making some charitable donations, I was able to get my MAGI just under the threshold so the NIIT didn't apply.

Be careful about calculating your exact gain! I made a huge mistake when selling my house last year. Your gain isn't just (selling price - purchase price). The actual formula is: Selling price - Selling expenses (realtor fees, etc.) - Purchase price - Purchase expenses (closing costs you paid when buying) - Capital improvements during ownership = Your actual gain I initially thought I had a $280k gain after the exclusion, but after properly accounting for $12k in selling costs, $8k in purchase costs, and about $65k in documented improvements, my taxable gain was only $195k. That saved me thousands in both capital gains tax and NIIT!

Thank you everyone for this incredibly detailed discussion! As someone who's been stressing about this exact situation, this thread has been a goldmine of information. I want to emphasize something that Miguel mentioned about calculating your actual gain - I see so many people (including myself initially) making the mistake of thinking it's just selling price minus what you paid. The reality is that your basis includes not just your original purchase price, but also: - Closing costs when you bought - Major capital improvements (kitchen remodels, new roofs, HVAC systems, etc.) - Selling expenses (realtor commissions, title fees, etc.) I've been keeping a spreadsheet of all my home improvements over the years, but after reading this thread I realized I forgot about my original closing costs from 9 years ago. Just found those documents and it's another $7,200 I can add to my basis! For anyone in a similar situation, I'd strongly recommend gathering ALL your documentation before panicking about the tax implications. Between the $250k/$500k exclusion and properly calculating your actual basis, your taxable gain might be much lower than you initially think. Also planning to try that taxr.ai tool that Giovanni and Dylan mentioned - seems like it could help me organize all this information properly before I meet with my tax preparer.