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Do Purchased Tax Credits Reduce the 3.8% Net Investment Income Tax?
Quick answer
Purchased tax credits generally do not reduce the 3.8% net investment income tax. Section 1411 imposes the tax in addition to other income taxes, and §38(c) limits general business credits to regular and minimum tax, which do not include NIIT. A purchased credit can still reduce regular federal income tax within the §38(c) and, for individuals, §469 limits.
Published October 28, 2026. Short answer: generally no. The net investment income tax (NIIT) sits outside the income tax and AMT that general business credits are measured against.
What the statutes say
Section 1411 imposes a 3.8% tax on individuals "in addition to any other tax imposed by this subtitle," equal to 3.8% of the lesser of net investment income or modified AGI over the threshold amount ($250,000 joint, $200,000 other, $125,000 married filing separately). Section 38(c) limits the general business credit to the excess of "net income tax," defined as the regular tax liability plus the §55 tax, over the greater of tentative minimum tax or 25% of net regular tax above $25,000. NIIT is not in either component.
Reading these together, a purchased credit that is taken as a general business credit does not reduce NIIT. We are not aware of IRS guidance that says otherwise; confirm with your CPA on your facts.
What it can still do
| Tax | Reduced by purchased credit? |
|---|---|
| Regular federal income tax | Yes, within your limits (C corporations: §38(c); individuals: passive limits) |
| Alternative minimum tax | Subject to the §38(c) formula |
| 3.8% NIIT | Generally no |
| State income tax | No, federal credits reduce federal tax only |
Planning implications
- Do not size a purchase against total federal tax if part of it is NIIT.
- NIIT applies to individuals, estates and trusts, not to C corporations, which is one more reason C corporations are the cleaner buyer.
- Modified AGI planning, such as timing gains, may matter for NIIT in ways credits do not.
See also federal capital gains tax and §469 and transferable credits.
Frequently asked questions
Do purchased tax credits reduce the net investment income tax?
Generally no. NIIT is imposed by §1411 in addition to income tax, while the general business credit limit under §38(c) is measured against income tax and AMT.
What are the NIIT thresholds?
$250,000 of modified AGI for married filing jointly, $200,000 for most other filers and $125,000 for married filing separately (§1411(b)).
Does NIIT apply to C corporations?
No. Section 1411 applies to individuals, estates and trusts.
What can a purchased credit offset?
Regular federal income tax and, subject to the formula, AMT, within the buyer's limits. It does not offset state tax.
Owe $50k or more in federal tax?
Tell us your estimated liability and timing. We will show you what transferable credits are available and walk your CPA through the diligence.
Get a tax credit quote §48E buyer guide or call (888) 328-4718