Which of the following types of income is not subject to the Net Investment Income Tax?

Municipal bond interest is not subject to the Net Investment Income Tax (NIIT). The NIIT is a tax imposed on certain high-income individuals, estates, and trusts that applies to net investment income, which includes interest, dividends, capital gains, rental income, and other investment-related income. However, interest earned from municipal bonds is generally exempt from federal income tax, making it also exempt from the NIIT. This tax advantage is one reason why many investors are attracted to municipal bonds, especially those in higher tax brackets.

In contrast, capital gains, passive business activities, and stocks can generate income that falls within the scope of the NIIT, as they produce net investment income, especially for taxpayers whose modified adjusted gross income exceeds the NIIT thresholds. Therefore, the exemption of municipal bond interest from the NIIT makes it a unique category of income that does not contribute to the taxable amount under this specific tax.