U.S. Net Investment Income Tax: A Growing Consideration for Americans in France and Across Europe
For U.S. citizens living in France and across Europe, the tax consequences of selling an investment can extend well beyond the country in which they reside.
Following the Federal Circuit’s August 31, 2026 companion decisions in Bruyea v. United States and Christensen v. United States, a $1 million foreign capital gain could potentially generate as much as $38,000 of U.S. Net Investment Income Tax (NIIT)—even where substantial European taxes have already been paid on the same gain.
The decisions reversed earlier taxpayer victories and reinforced the U.S. government’s position that treaty provisions designed to mitigate double taxation do not necessarily override the Internal Revenue Code’s restrictions on using foreign tax credits against NIIT.
This distinction can be particularly important for Americans resident in France, as well as U.S. citizens elsewhere in Europe who hold significant investment portfolios, property or other appreciating assets.
Under Internal Revenue Code Section 1411, NIIT is imposed at 3.8% on the lesser of an individual’s net investment income or the amount by which modified adjusted gross income exceeds the applicable threshold. Those thresholds are currently $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately and $200,000 for single and head-of-household filers.
Net investment income can include capital gains, dividends, interest, rents and royalties.
The difficulty for Americans in Europe is that NIIT operates differently from ordinary U.S. federal income tax. Consider a U.S. citizen resident in Paris who realizes a substantial gain from the sale of a foreign investment. French taxation of the gain may generate foreign tax credits sufficient to reduce or eliminate the taxpayer’s regular U.S. income-tax liability.
That does not necessarily eliminate NIIT.
As the Federal Circuit concluded in Bruyea and Christensen, the relevant treaty provisions do not provide taxpayers with an independent mechanism for crediting foreign taxes against the Section 1411 liability where the Internal Revenue Code itself does not permit that credit.
The result highlights an increasingly important issue for internationally mobile Americans: eliminating regular U.S. income tax through foreign tax credits does not necessarily mean eliminating U.S. tax exposure altogether.
For U.S. citizens in France and elsewhere across Europe, this makes advance planning particularly important before realizing significant capital gains, restructuring investment portfolios or disposing of highly appreciated assets. The interaction between local taxation, U.S. federal taxation, foreign tax credits and NIIT should ideally be considered before—not after—a transaction occurs.
References: Bruyea v. United States and Christensen v. United States, U.S. Court of Appeals for the Federal Circuit, companion decisions issued August 31, 2026; Internal Revenue Code §1411 (Net Investment Income Tax).
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