Form 8960 Line 9b deduction base — is FTU applying the full allowable amount?
For Form 8960 (Net Investment Income Tax), Line 9b allows a deduction for taxes properly allocable to net investment income. According to IRS Reg. §1.1411-4(f)(3) and the Form 8960 instructions, the deduction base is not subject to the $10,000 SALT cap used on Schedule A.
Instead, the IRS allows the full amount of deductible state, local, and foreign income taxes (such as W-2 Box 17 withholding and estimated payments) to be proportionally allocated based on the ratio of investment income to AGI.
It appears FreeTaxUSA limits the deduction base to $10,000, which reduces the Line 9b deduction and increases NIIT owed — even when more taxes were actually paid. Can anyone confirm whether this cap is intentionally applied, and if there's a way to override it to reflect the full allowable deduction?
Thanks in advance!