On Form 8960 for the Net Investment Income Tax, line 9b, you can deduct the part of state and income tax allocable to your investment income. Suppose my state income tax for 2018 is more than $10,000, but I can only deduct $10,000 of it on Schedule A itemized deductions in 2018 due to the SALT deduction cap in the new tax law. Does that mean I can only take $10,000 and allocate that between my investment and non-investment income (and deduct the fraction of the $10,000 that is allocable to investment income)? or can I take the entire amount of my state income tax for the year (even though it's over $10,000) and allocate that between my investment and non-investment income (and deduct the part that is allocable to investment income)?
I saw a line in the Form 8960 instructions, page 12, section "Reasonable method allocations", that says:
The three items that may be allocated between net investment income and excluded income are the following.
• State, local, and foreign income taxes if properly deducted on your return when calculating your U.S. regular income tax.
I did properly deduct my state income tax on my federal tax return when calculating my regular federal income tax, but I could only deduct $10,000 of it. So I am wondering if that means I can only allocate $10,000 between investment income and other income, or I can allocate all of my state income tax between investment income and other income.