NIIT is an additional 3.8% federal tax on investment income (including capital gains from LA multifamily sales) for filers with modified AGI above $200,000 single / $250,000 married.
Enacted under the Affordable Care Act, NIIT adds 3.8% to the federal capital gains tax rate for higher earners. On a $1M capital gain, NIIT alone is $38,000 on top of the 20% base capital gains rate.
For most LA multifamily sellers in the top federal brackets, NIIT applies and is routine. It's part of the combined federal tax number commonly cited as 23.8% on long-term capital gains.
Almost every LA multifamily seller with a meaningful gain is subject to NIIT given the typical filer income profile. Factor into any tax math on LA sales. Deferred by 1031 exchange same as regular capital gains.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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