8655 / Which trusts are not subject to the net investment income tax?

Trusts not subject to the net investment income tax include charitable trusts exempt from tax under IRC Section 501¹ or IRC Section 664² (charitable remainder trusts) and trusts that are not classified as “trusts” for federal income tax purposes.³ Moreover, if all of the remaining interests in a trust are designated for certain qualified purposes, the trust is not subject to the net investment income tax. These qualified purposes described in IRC Section 170(c)(2)(B) include religious, charitable, scientific, literary or educational purposes.⁴

Finally, grantor trusts such as revocable trusts are not subject to the net investment income tax. This is because the income of a grantor trust is taxed directly to the grantor. As a result, any net investment income generated by the trust is included in the grantor’s net investment income – potentially subject to the 3.8 percent tax at the individual level.⁵

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1. Treas. Reg. § 1.1411-3(b)(1)(ii).

2. Treas. Reg. § 1.1411-3(b)(1)(iii).

3. Treas. Reg. § 1.1411-3(b)(1)(iv).