NIIT and AMT.
The two taxes that surprise high earners.

Section 1 · Net Investment Income Tax (NIIT)

A 3.8% surtax on investment income for higher earners. Introduced in 2010 to fund the Affordable Care Act. Codified at IRC Section 1411 verify×DON'T TRUST, VERIFYClaim: NIIT is a 3.8% surtax codified at IRC Section 1411.Verify at: IRS Topic 559: Net Investment Income Tax ↗ Source 1 in the list belowIRS Topic 559 is the primary public-facing reference; underlying authority is IRC Section 1411..

What income it applies to:

• Capital gains (long-term and short-term, including Bitcoin gains)
• Dividends (qualified and ordinary)
• Interest income
• Rental income (most categories)
• Passive business income

What income it does NOT apply to:

• W-2 wages and self-employment income (these are subject to FICAFederal Insurance Contributions Act (FICA)The federal payroll tax that funds Social Security and Medicare. Workers pay 6.2% for Social Security (on wages up to $184,500 in 2026) plus 1.45% for Medicare, and employers match both. Self-employed people pay both halves, 15.3%, as self-employment tax.Full definition / SE tax instead)
• Distributions from qualified retirement plans (401k, IRAIndividual Retirement Account (IRA)A retirement account with tax advantages and eligibility rules. Traditional IRA contributions may be deductible; taxable withdrawals generally enter income. Roth contributions use after-tax money, and qualified Roth withdrawals are tax-free.Full definition)
• Active business income from a trade or business in which you materially participate

Section 2 · Strategies to reduce NIIT

Most NIIT planning has to happen before gains are realized. The strategies below address NIIT through MAGI management, gain timing, and structure.

• Roth conversions in lower-income years. Future Roth withdrawals are not subject to NIIT and do not raise MAGI. Doing conversions in a gap year (early retirement, sabbatical, between jobs) reduces future NIIT exposure. See the Roth conversion calculator.
• Maximize traditional retirement-plan contributions. Pre-tax 401(k), 403(b), and deductible Traditional IRA contributions reduce current MAGI directly. If reducing MAGI below the threshold is feasible, NIIT can be avoided entirely for the year.
• Installment sales. Spreading gain recognition across multiple tax years (using IRC Section 453) keeps each year's MAGI below the NIIT threshold where possible verify×DON'T TRUST, VERIFYClaim: Installment-sale treatment is available under IRC Section 453.Verify at: IRS Installment Sales ↗ Source 3 in the list belowInstallment-sale treatment applies to sales of certain property, not to publicly traded securities or cryptocurrency held for investment.. Note: not available for stock or cryptocurrency held for investment.
• Gifting appreciated assets to lower-income family members. If they are below the NIIT threshold, gains realized in their hands avoid the surtax (subject to gift-tax rules and the kiddie tax for children).
• Qualified Opportunity Zone investments. Defer gain recognition by reinvesting capital gains in a Qualified Opportunity Fund within 180 days. Hold the QOF for 10 years and the appreciation in the QOF itself is tax-free. See the tax-strategy page for the full mechanics.
• Charitable bunching via Donor-Advised Fund. Donating appreciated Bitcoin or stock held over one year to a DAFDonor-Advised Fund (DAF)A charitable account where you contribute, take an immediate tax deduction, and direct gifts to charities over time.Full definition avoids capital gains entirely on the donated amount and generates a deduction at fair market value (subject to AGIAdjusted Gross Income (AGI)Your total income minus certain deductions, used to calculate your tax bill.Full definition limits).

Section 3 · Alternative Minimum Tax (AMT)

A parallel tax system that runs alongside the regular tax system to ensure high earners pay at least a minimum amount. You pay whichever is higher: your regular tax or your AMT verify×DON'T TRUST, VERIFYClaim: AMT is calculated on Form 6251 and the taxpayer pays the higher of regular tax or AMT.Verify at: IRS Topic 556: AMT for Individuals ↗ · Form 6251 ↗ Source 4 in the list belowForm 6251 is the official AMT calculation form. Topic 556 is the IRS public-facing summary..

How it works:

1. Start with regular taxable income.
2. Add back certain items that regular tax deducts or leaves out of income but AMT counts: SALTState and local tax (SALT)State and local taxes (income or sales tax, plus property tax) that itemizers can deduct on their federal return, up to a cap: $40,400 for 2026, rising 1% a year through 2029, then back to $10,000 in 2030. In 2026 the cap shrinks toward $10,000 once modified adjusted gross income passes $505,000.Full definition, standard deductionstandard deductionA fixed dollar amount that reduces your taxable income without itemizing. Most people claim this instead of listing individual deductions.Full definition, ISOIncentive Stock Option (ISO)A right your employer gives you to buy company shares at a fixed price later. Cheaper taxes than other stock options if you hold long enough, but can trigger an unexpected extra tax called AMT.Full definition exercise spreads, certain depreciation.
3. Subtract the AMT exemption.
4. Apply AMT rate: 26% on amounts up to approximately $244,500 (2026), 28% above.

Who gets hit:

TCJATax Cuts and Jobs Act (TCJA)The 2017 federal tax law that nearly doubled the standard deduction, capped the state and local tax (SALT) deduction at $10,000, and cut individual and corporate tax rates. In July 2025 the One Big Beautiful Bill Act made most of its personal cuts permanent and raised most filers' SALT cap to at least $40,000 through 2029.Full definition dramatically increased the AMT exemption and raised the phase-out threshold, mostly eliminating AMT for middle-income earners. The One Big Beautiful Bill Act, signed July 4, 2025, made the higher AMT exemptions permanent but reset the phase-out start to $500,000 (single) / $1,000,000 (MFJ) for 2026 (see After OBBBA: What the 2026 Tax Code Looks Like), so the AMT remains narrowly targeted rather than reverting to the broad pre-TCJA exposure.

Currently most at risk:

• High-income W-2 earners with large SALT deductions (in high-tax states)
• Executives exercising Incentive Stock Options (ISOs); the ISO spread is an AMT preference item
• Households with large tax-exempt interest from private-activity municipal bonds

Section 4 · The ISO + AMT trap

The most common AMT surprise hits Incentive Stock Option (ISO) holders.

Mitigation: exercise ISOs in the first quarter of the year, then watch the share price. If it drops, sell the shares before December 31 of the same year (a "disqualifying disposition") and the AMT preference is eliminated. The trade-off: a disqualifying disposition turns the gain into ordinary income rather than long-term capital gain. See Stock Options, RSUs, and Equity Compensation for the full mechanics.

Section 5 · How to check if either applies to you

For NIIT: Form 8960 is the calculation form. If your MAGI exceeds the threshold and you have any net investment income, you owe NIIT. Most tax software calculates it automatically.

For AMT: Form 6251 is the calculation form. Most tax software calculates AMT automatically and shows you whether you owe regular tax or AMT (whichever is higher).

Before a major event: run a projection.

• Selling Bitcoin worth more than your annual income? Project the NIIT and combined federal + state rate before deciding when and how much.
• Exercising ISOs? Run an AMT projection before exercising. Many companies offer ISO calculators; tax software does too.
• Doing a Roth conversionRoth conversionMoving eligible retirement money into a Roth account. Pre-tax amounts and earnings generally create taxable income; nondeductible basis is treated under the applicable aggregation rules. Conversions can affect tax brackets and income-based costs, and separate withdrawal rules apply.Full definition that puts you above $200k single / $250k MFJ? The conversion itself does not trigger NIIT (retirement distributions are excluded), but it raises MAGI and could pull other investment income into NIIT range.

Use the tax estimator for NIIT scenarios. For ISO and AMT projections, consult a CPA before exercising. The cost of professional advice on a major equity-comp event is typically a fraction of the tax surprise it prevents.