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I have a few thousand dollars in mutual fund distributions (reinvested) and interest that are subject to the additional Medicare tax imposed by the Affordable Care Act. As I understand the forms, I'm subject to tax only on my net investment profits. In particular, I'm allowed to reduce those profits by state and local taxes.

Both Form 8960 and its instructions are decidedly less than pellucid on the details, though. This is what I think I'm supposed to do or at least allowed to do. I'd appreciate some confirmation that I'm right, or correction if I'm wrong.

First, since everything else about personal income tax is calculated on a cash basis, I assume this calculation is likewise performed on a tax basis. Accordingly, all I care about is taxes actually paid (or withheld) in 2020.

Second, I'm allowed to count taxes paid in 2020 that are attributable to any investment income, even state taxes paid in 2020 for investment income received in 2019. Conversely, I am not allowed to count (for my 2020 return) taxes that won't be paid until 2021 on investment income received in 2020.

Am I correct about these issues? Thanks. --Bob
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