Senior Tax Specialist Practice Exam

To determine Logan's net investment income tax based on his modified adjusted gross income (MAGI), it's important to understand how the net investment income tax works. This tax applies to individuals with MAGI above certain thresholds ($200,000 for single filers and $250,000 for married filing jointly, as of 2023). It is assessed at a rate of 3.8% on the lesser of net investment income or the amount by which MAGI exceeds the threshold.

If Logan's MAGI was calculated and found to be $250,000, it exceeds the threshold for single filers by $50,000. If his net investment income, which might include dividends, interest, and passive income, is $10,000, then the net investment income tax calculation would be:

1. Calculate the amount over the threshold: $250,000 (MAGI) - $200,000 (threshold) = $50,000.

2. Compare this with Logan's net investment income, which is $10,000.

3. The lesser amount is $10,000.

Using the rate of 3.8%, the net investment income tax would then be:

$10,000 x 0.038 = $380,