What type of income is subject to the net investment income tax?

The net investment income tax (NIIT) is specifically designed to target a particular category of income, which includes net investment income. This tax primarily applies to individuals, estates, and trusts with income above certain thresholds.

Investment income encompasses a variety of revenue types, including interest, dividends, capital gains, rental income, and other passive income sources. The focus of the NIIT is on this investment income, as it is often deemed to represent unearned income, which is subject to different taxation rules than earned income like wages or salaries.

While ordinary income, real estate income, and capital gains may fall within the broader investment income category, the net investment income tax specifically zeroes in on net investment income as its subject. Thus, it is correct to identify investment income as the type of income subject to the NIIT since it directly relates to the additional tax imposed on individuals with net investment income exceeding established levels. This distinction is pivotal in understanding the application of the NIIT in tax planning and compliance for taxpayers engaged in investment activities.