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Subject Author Date
How to calculate modified adjusted gross income Puzzled 03-01-2007
Posted by Puzzled on March 1, 2007, 7:06 am
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 We are trying to determine the modified adjusted gross
income (MAGI) for IRA deductibility. We have a 401K plan,
so the status is "limit if covered by employer plan". Per
worksheet 1-1 on page 15 of Pub 590 (IRA Arrangements), the
MAGI calculation is shown below:

Take your Adjusted Gross Income on Line 38 and add back in:

IRA deduction.

Student loan interest.

Tuition and fees deduction.

Foreign earned income exclusion.

Foreign houseing exclusion or deduction.

Exclusion of quialified savings bond interest shown on
Form 8815 -

Exclusion of Interest From Series EE and I U. S. Savings
Bonds Issued

After 1989 (For Filers With Qualified Higher Education
Expenses).

Exclusion of employer-provided adoption benefits shown of
Form 8839 -

Qualified Adoption Expenses.

On line 17 of the 1040 form, we have rental loss from
Schedule E. This is considered as passive activity. It is
included in the AGI on line 38. On page 8 of Pub 590 under
the section "what is not compensation" for purpose of IRA,
it says compensation does not include earnings and profits
from property, such as rental income. So for the same
logic, it would seem rental loss should not be included in
MAGI. If we include the rental loss, the MAGI would be
below the threshold and IRA is deductible. If we exclude
the rental loss, the MAGI would be above the threshold and
not deductible. The worksheet 1-1 per above does not have
an line item for that adjustment. Turbotax accepts the
rental loss as part of the MAGI, which I am not sure whether
it is correct (beacuse page 8 of Pub 590 says rental income
is not compensation for IRA purpose). Can you give me some
input as whether rental loss should be included or exclued
from MAGI? We appreicate your help.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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Posted by Phil Marti on March 1, 2007, 8:49 pm
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> We are trying to determine the modified adjusted gross
> income (MAGI) for IRA deductibility.

<snip>

> On line 17 of the 1040 form, we have rental loss from
> Schedule E. This is considered as passive activity. It is
> included in the AGI on line 38.

And AGI is the starting point for calculating MAGI.

> On page 8 of Pub 590 under the section "what is not
> compensation" for purpose of IRA,

Totally irrelevant to MAGI. That part of the pub is talking
about compensation on which you can base IRA contributions.
You're mixing apples and hand grenades.

--
Phil Marti
Clarksburg, MD

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Benjamin Yazersky CPA on March 1, 2007, 8:49 pm
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> We are trying to determine the modified adjusted gross
> income (MAGI) for IRA deductibility. We have a 401K plan,
> so the status is "limit if covered by employer plan". Per
> worksheet 1-1 on page 15 of Pub 590 (IRA Arrangements), the
> MAGI calculation is shown below:
>
> Take your Adjusted Gross Income on Line 38 and add back in:
>
> IRA deduction.
>
> Student loan interest.
>
> Tuition and fees deduction.
>
> Foreign earned income exclusion.
>
> Foreign houseing exclusion or deduction.
>
> Exclusion of quialified savings bond interest shown on
> Form 8815 -
>
> Exclusion of Interest From Series EE and I U. S. Savings
> Bonds Issued
>
> After 1989 (For Filers With Qualified Higher Education
> Expenses).
>
> Exclusion of employer-provided adoption benefits shown of
> Form 8839 -
>
> Qualified Adoption Expenses.
>
> On line 17 of the 1040 form, we have rental loss from
> Schedule E. This is considered as passive activity. It is
> included in the AGI on line 38. On page 8 of Pub 590 under
> the section "what is not compensation" for purpose of IRA,
> it says compensation does not include earnings and profits
> from property, such as rental income. So for the same
> logic, it would seem rental loss should not be included in
> MAGI. If we include the rental loss, the MAGI would be
> below the threshold and IRA is deductible. If we exclude
> the rental loss, the MAGI would be above the threshold and
> not deductible. The worksheet 1-1 per above does not have
> an line item for that adjustment. Turbotax accepts the
> rental loss as part of the MAGI, which I am not sure whether
> it is correct (beacuse page 8 of Pub 590 says rental income
> is not compensation for IRA purpose). Can you give me some
> input as whether rental loss should be included or exclued
> from MAGI? We appreicate your help.

MAGI is a poster child for unnecessary complexity in tax
laws.

The best way to deal with it is to purchase high end tax
prep software & let it do the calculations.

Trying to do it by hand borders on insanity.

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by bono9763@yahoo.com on March 1, 2007, 9:08 pm
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> We are trying to determine the modified adjusted gross
> income (MAGI) for IRA deductibility. We have a 401K plan,
> so the status is "limit if covered by employer plan". Per
> worksheet 1-1 on page 15 of Pub 590 (IRA Arrangements), the
> MAGI calculation is shown below:
>
> Take your Adjusted Gross Income on Line 38 and add back in:
>
> IRA deduction.
>
> Student loan interest.
>
> Tuition and fees deduction.
>
> Foreign earned income exclusion.
>
> Foreign houseing exclusion or deduction.
>
> Exclusion of quialified savings bond interest shown on
> Form 8815 -
>
> Exclusion of Interest From Series EE and I U. S. Savings
> Bonds Issued
>
> After 1989 (For Filers With Qualified Higher Education
> Expenses).
>
> Exclusion of employer-provided adoption benefits shown of
> Form 8839 -
>
> Qualified Adoption Expenses.
>
> On line 17 of the 1040 form, we have rental loss from
> Schedule E. This is considered as passive activity. It is
> included in the AGI on line 38. On page 8 of Pub 590 under
> the section "what is not compensation" for purpose of IRA,
> it says compensation does not include earnings and profits
> from property, such as rental income. So for the same
> logic, it would seem rental loss should not be included in
> MAGI. If we include the rental loss, the MAGI would be
> below the threshold and IRA is deductible. If we exclude
> the rental loss, the MAGI would be above the threshold and
> not deductible. The worksheet 1-1 per above does not have
> an line item for that adjustment. Turbotax accepts the
> rental loss as part of the MAGI, which I am not sure whether
> it is correct (beacuse page 8 of Pub 590 says rental income
> is not compensation for IRA purpose). Can you give me some
> input as whether rental loss should be included or exclued
> from MAGI? We appreicate your help.

You are mixing up two different things. MAGI does include
the rental loss, as Turbotax tells you. When Pub 590 is
talking about rental income as compensation for IRA
purposes, what it means is that in order to be able to
contribute to an IRA, you have to have earned income. That
is either from Line 7 wages or net income from self-
employment (or alimony), not rental income. It has nothing
to do with calculating MAGI.

Dennis

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Puzzled on March 3, 2007, 5:07 am
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Thank you all for your replies. We ran TurboTax with the
IRA contribution. The entire contribution shows as IRA
deduction on line 32 of 1040, so the software includes the
rental loss as part of the MAGI and our IRA contribution is
fully deductible. Based on your replies and TurboTax, we
can include the rental loss in our MAGI for IRA
deductibility calculation. Please let us know if we mis-
interpreted your comments. We appreciate your help again.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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