Tax-Efficient Strategies for High-Income Earners: Minimizing the Impact of the Net Investment Income Tax

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The net investment income tax (NIIT) has been a weight on the back of high-income earners for a little more than a decade, but that long time in force has provided tax professionals with ample time to formulate strategies investors can use to reduce the impact of this levy.

A Quick History

The NIIT is a revenue-raising offset that was put into place by the Health Care and Education Reconciliation Act of 2010 to help fund Medicare. The NIIT – which applies to passive income from stock dividends, bond interest, rental income and more – is a 3.8% tax on the lesser of net investment income or the excess of your modified adjusted gross income (MAGI) over your applicable threshold. Those thresholds are:

  • $200,000 for single filers and heads of household.
  • $250,000 for married couples filing jointly and widow(er)s with a dependent child
  • $125,000 for married couples filing separately.

The tax also applies to the lesser of undistributed net investment income or the excess of adjusted gross income (AGI) over the beginning dollar amount of the estate or trust’s highest tax bracket ($15,200 in 2024).

Strategies for Minimizing NIIT

High-income earners who want to reduce the impact of net investment income tax have a few methods at their disposal, primarily revolving around either reducing MAGI or effectively managing investments. These options include:

  • Investing in tax-exempt debt: Municipal bonds are exempt from federal income taxes – and, depending on where you live and the issuer of the municipal bonds, state and local taxes. But municipal bonds have another advantage: Their interest income isn’t subject to the NIIT. (Also, munis’ interest doesn’t increase AGI, so it’s helpful from that tax perspective, too.)
  • Using tax-efficient investments: Normal buying and selling within many mutual funds often results in capital gains, which tax regulations dictate must be distributed to the fund’s shareholders. However, tax-managed mutual funds and exchange-traded funds (ETFs) minimize or eliminate capital gains distributions, helping you minimize these taxable events.
  • Tax-loss harvesting: You can sell investments that have experienced a decline in value to below their original cost basis, thus offsetting some or all of your capital gains and reducing AGI. (If you do use this strategy, make sure you comply with the IRS’s wash-sale rules.)
  • Contributing to retirement accounts: Contributing to retirement accounts, including 401(k) plans and individual retirement accounts (IRAs) can reduce your MAGI. However, this does not apply to Roth versions, such as Roth IRAs or Roth 401(k)s. Also worth noting for investors in retirement: Distributions from these vehicles aren’t subject to NIIT, either, but they can increase your MAGI.
  • Donating appreciated assets: Donating appreciated assets, such as stocks or mutual funds, directly to charity or donor advised funds can provide double tax benefits. Donors receive a charitable deduction for the fair market value of the donated assets, which reduces taxable income subject to the NIIT. They also avoid paying capital gains tax on the appreciation.

Navigating the complexities of the NIIT requires a strategic approach, especially for high-income earners looking to minimize their tax liabilities. BluePointe Capital specializes in providing tax-efficient investment advice and planning that enables high-income earners to optimize their investment outcomes while contributing to their long-term financial health and stability.

Contact us to learn more about our comprehensive investment consulting and advanced planning offerings.


The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of BluePointe Capital Management, LLC’s disclosure statement (Form ADV Part 2) and execution of an investment advisory agreement between the client and BluePointe Capital Management, LLC.

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