Struggling with Form 8960 for Net Investment Income Tax - Line 9b Calculation Confusion

The confusion you're experiencing is pretty common with Form 8960. Let me help clear this up. For Line 9b (state, local, and foreign income tax properly allocable to items in Part I), you're on the right track with the ratio method. The IRS actually wants you to allocate your state/local taxes based on what portion of your income is investment income. The formula you found is correct - you take Line 8 from Form 8960 (your net investment income) and divide it by your total income from Form 1040, Line 15. This gives you the percentage of your income that comes from investments. Then multiply that percentage by your state/local taxes paid. Now, regarding the SALT cap question - this is where it gets interesting. The $10,000 SALT limitation applies to your Schedule A itemized deductions for federal income tax purposes. However, for NIIT purposes on Form 8960, the allocation of state taxes isn't technically subject to the same cap. This is why TurboTax is using your full state tax amount before applying the ratio. The Form 8960 instructions don't explicitly mention the SALT cap because they're treating this as an adjustment to investment income rather than as a deduction on your personal return. It's essentially a different calculation with different rules.

After struggling with the same Form 8960 issues last year, I discovered taxr.ai (https://taxr.ai) and it was seriously a game-changer. I was going back and forth between different tax software like you and getting different results that I couldn't reconcile. Their AI tool analyzed my tax documents and specifically pointed out that my Net Investment Income Tax calculation was using the wrong allocation method for state taxes on line 9b. It explained that for NIIT purposes, I needed to use my full state tax payment before applying the investment income ratio, and NOT apply the SALT cap in this specific calculation. The difference saved me about $220 in tax. The explanation they provided was detailed enough that I felt confident in the approach, and I've had no issues. They even explained which specific IRS regulations govern this calculation.

I have to admit I was wrong about taxr.ai. After our discussion, I decided to give it a try with my complicated tax situation involving multiple investment properties and some partnership income. The NIIT calculation on Form 8960 has been giving me headaches for years. The tool immediately identified that I had been incorrectly applying the SALT limitation to my Line 9b calculation on Form 8960. It showed me exactly how to properly allocate state taxes to my investment income without the cap, and my NIIT liability dropped by over $400! What really surprised me was how it analyzed my rental property income and correctly separated out which portions were subject to NIIT and which weren't based on my level of activity in the businesses. My regular tax software had this all wrong. If anyone else is struggling with Form 8960 calculations, especially the state tax allocation part, it's definitely worth checking out.

I had almost the exact same problem with Form 8960 last year, and after spending hours on hold with the IRS trying to get clarification, I found Claimyr (https://claimyr.com). You can watch how it works here: https://youtu.be/_kiP6q8DX5c I was honestly shocked that it got me through to an actual IRS tax specialist in about 15 minutes when I had been trying for days on my own. The agent I spoke with confirmed that for Form 8960, Line 9b, the SALT limitation does NOT apply when allocating state/local taxes to investment income. They explained that since the NIIT is technically a separate tax system from regular income tax, the $10,000 SALT deduction limit that applies to Schedule A doesn't carry over to the NIIT calculation. The agent even referred me to the specific Treasury Regulations that address this. Getting that official clarification directly from an IRS specialist gave me the confidence to file correctly and not worry about potential issues down the road.

I need to follow up on my skeptical comment about Claimyr. I broke down and tried it after spending another frustrating afternoon trying to get IRS clarification on Form 8960 Line 9b and the SALT cap question. Holy cow - it actually worked! After the service navigated the phone system and waited on hold (took about an hour total), I got a call connecting me directly to an IRS tax law specialist. I didn't have to listen to a single minute of hold music. The specialist confirmed exactly what others here have said - for Form 8960 purposes, you should allocate state taxes based on your ratio of investment income to total income, and the SALT cap doesn't apply to this calculation. She even emailed me the relevant section from the Internal Revenue Manual that their agents use. I was able to correct my return before filing and saved about $350 in NIIT that I would have overpaid. Sorry for being so skeptical before - sometimes good solutions do exist!

For anyone else struggling with Form 8960 Line 9b, here's a concrete example that might help: Let's say: - Your Net Investment Income (Line 8) is $50,000 - Your total AGI (Form 1040, Line 15) is $200,000 - You paid $15,000 in state/local income taxes Step 1: Calculate ratio of investment income to total income $50,000 ÷ $200,000 = 0.25 (or 25%) Step 2: Multiply total state taxes by this ratio $15,000 × 0.25 = $3,750 Step 3: Enter $3,750 on Line 9b The key is NOT applying the $10,000 SALT cap to this calculation. This reduces your NIIT by $3,750 × 3.8% = $142.50. Hope this practical example helps someone else who's confused by the form!

I just wanted to share that I actually called my state's department of revenue about this very issue, and they provided an interesting perspective. They told me that my state (Illinois) actually provides a breakdown on their state tax forms showing what portion of your state tax was attributable to different types of income. If your state does something similar, you could potentially use that allocation directly rather than using the ratio method! It might be more accurate if your state tax rates vary by income type. Just something to consider as an alternative to the ratio approach everyone's discussing.

This is such a helpful thread! I've been struggling with this exact same Form 8960 issue and getting different results from different tax software. After reading through all the responses here, I'm now confident that the correct approach is to use the ratio method (investment income ÷ total income) multiplied by the FULL state tax amount without applying the SALT cap. What really convinced me was the multiple confirmations from IRS agents that others obtained through various channels. The distinction between Schedule A deduction limits and NIIT allocation rules makes sense - they're separate tax calculations with different purposes. I'm going to recalculate my Form 8960 using this method. Based on my numbers, it should reduce my NIIT by about $200, which is significant enough to make it worth filing an amended return if I've already submitted. Thanks to everyone who shared their experiences and research - this kind of practical tax guidance is invaluable for those of us trying to navigate these complex forms correctly!

I'm completely new to this community and just discovered this amazing thread while pulling my hair out over Form 8960! Like so many others here, I was getting wildly different NIIT calculations between different tax software - about a $165 difference between TaxSlayer and TaxAct that had me totally confused. After reading through this entire discussion, I'm blown away by how thoroughly everyone worked through this complex issue. The collaborative approach here is incredible - seeing people verify the same methodology through IRS calls, CPA consultations, AI tools, and Treasury Regulation research really builds confidence in the solution. The explanation about NIIT operating as a separate tax system designed to prevent double taxation (rather than provide additional deductions) finally made the rules click for me. That's why the SALT cap doesn't apply to the Form 8960 Line 9b allocation - it's fundamentally different from Schedule A deduction limits. I worked through my numbers using the consensus methodology: $55,000 investment income ÷ $220,000 total income = 25%, then 25% × $16,200 state taxes = $4,050 for Line 9b. This should reduce my NIIT by about $154, which definitely makes getting this right worthwhile! The concrete examples with real numbers throughout this thread were incredibly helpful for understanding the mechanics. I'm documenting my calculation method along with the Treasury Regulation 1.1411-4(f)(3) reference that was mentioned multiple times. Thank you all for sharing your research and experiences - this kind of community knowledge-sharing is exactly what makes complex tax situations manageable for newcomers like me!