Modified AGI

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Modified Adjusted Gross Income

In the United States, the amount of income used to determine how much of a taxpayer's IRA contributions are tax deductible. One calculates the modified AGI by taking the adjusted gross income and adding back various deductions, notably interest on student loans, foreign income deductions, foreign housing deductions, and higher education costs. Depending on the modified AGI, some or all of one's IRA contributions will not be deductible.

Modified AGI (MAGI)

Modified adjusted gross income (MAGI) is a figure used to figure the limit on an exclusion or deduction allowed in computing adjusted gross income. Depending on the item for which MAGI is being computed, certain items taken into account in figuring adjusted gross income (AGI) are ignored. For example, for child tax credit purposes, MAGI is AGI plus any excluded foreign, U.S. possession, or Puerto Rican income. The IRS provides a worksheet for figuring MAGI whenever you are required to compute it.

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Individual retirement arrangement deduction--For taxpayers covered by a retirement plan, the IRA deduction phased out between $56,000 and $66,000 of modified AGI for single filers ($89,000 and $109,000 for married filing jointly or qualifying widow(er)).

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Their total adoption expenses are $13,500, and modified AGI for 2011 is $105,000.

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If, however, Bob's salary is $124,000 and interest income remains at $6,000, the full $25,000 maximum cannot be utilized since Bob's modified AGI is $130,000.

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Adoption credit--Line 51: The maximum adoption credit has risen to $10,000, and phases out over a higher range of modified AGI ($150,000-$190,000).

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Just like the exclusion, the benefits of the tax credit also begin to phase out for those with modified AGI above $150,000 ($75,000 prior to 2002).

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Taxpayers converting traditional IRAs to Roth IRAs are not subject to modified AGI and filing status requirements.

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Maximum interest deduction Deduction phase-out based on modified AGI $2,500

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Therefore, the $25,000 is totally phased out when the taxpayer's modified AGI reaches $150,000.

Case study: maximizing the use of the special $25,000 rental real estate loss allowance

The deduction phases out with modified AGI $125,000 - $135,000 for single filers, $250,000 - $260,000 for joint filers.

CCH Lists Ten Tax Changes That Benefit Individuals on 2009 Returns

Intended to offset a limited portion of an employee's share of FICA tax withholding, the credit phases out beginning at modified AGI of $75,000 for single filers and $150,000 for joint returns.

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An exception allows you to deduct up to $25,000 in rental real estate losses against non-passive income, but this loss allowance is phased out beginning at $100,000 in modified adjusted gross income (AGO and eliminated once your modified AGI reaches $150,000.

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Benefits can be phased out when modified AGI reaches certain amounts built into the tax law (as with education credits).