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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I have questions about modified adjusted gross income . I

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I have questions about "modified adjusted gross income". I am trying to lower my MAGI so I do not have to recapture my Cobra insurance subsidy. Please let me know which of the deductions will lower my MAGI: 1) Active real estate losses (real estate professional) 2) Schedule K losses 3) Charity donations 4) dependent exemption and head of household. 5) Any other deductions that can possibly lower my MAGI??
Hello whorl,

Real estate losses and Schedule K losses would lower your MAGI. Charity donations, dependents and head of household status would not.

Losses from any type of self employment or business actiity would lower your MAGI.

Other than those items, that is really the most common items that would help lower your MAGI.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.

Customer: replied 8 years ago.
For the self employment losses (schedule K and real estate), does it matter if I am a real estate professional or not (active vs passive)?

Also how about contributions to 401K and IRA?
How about the "primary residence" mortgage write-off (different from rental properties)?
medical expenses deductions?

Which ones will lower my MAGI?
Hello again whorl,

On the real estate losses, it will not matter if you are classifed as a real estate professional or not. Even if you are not a RE professional, as long as you actively participate in the management of your properties in some way, then you may write off up to $25,000 in losses, and those losses will reduce your MAGI.

Contributions to your 401k plan will not reduce your MAGI. Those are not included in your income to being with. IRA contributions will reduce your regular AGI, but then you must add those back in when determining your MAGI, so those actually make your MAGI increase.

Mortage write offs, medical expenses, charitable contributions -- all of those are part of your itemized deductions on Schedule A, and none of your itemized deductions reduce your MAGI.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you whorl.

Customer: replied 8 years ago.
Sorry for having one more clearification. I will accept your answers after this question.

I looked up my tax return worksheets (by tax software) and it seems the MAGI is calculated by *ADDING* schedule E, line 25 to my AGI. In this case, the real estate deduction is actually being *added back* to my MAGI. Can you please clearify how exactly the MAGI is calculated? My MAGI is actually much higher than my AGI because I have large real estate deductions to bring down the AGI but it seems to get added back to MAGI.

In which schedule and which line can I find my MAGI?
Hello again whorl,

I apologize for telling you in my original post that real estate losses would reduce your MAGI, because they will not. What I actually meant to say there is that they do reduce your regular AGI but then need to be added back in when figuring your MAGI.

Modified adjusted gross income is determined by computing:

Your regular AGI without:

Any passive loss or passive income, or                            
Any rental losses   or
IRA deductions or,
taxable social security or
One-half of self-employment tax or       
Exclusion under 137 for adoption expenses or
Student loan interest.
Exclusion for income from US savings bonds (to pay higher education tuition and fees)
Qualified tuition expenses (tax years 2002 and later)
Tuition and fees deduction
Any overall loss from a PTP (publicly traded partnership)

Your regular AGI is what you show on line 37 of the Form 1040. You must then add back in any deductions you took that fall in to any of the above classifications.,,id%3D146823,00.html+modified+adjusted+gross+income+irs&cd=1&hl=en&ct=clnk&gl=us

Thank you again whorl, and let me know if you have any additional questions.

Customer: replied 8 years ago.
OK Thanks for the correction.

Then my questions are really "what deductions can be used to lower my MAGI".
I know many deductions can not be used to lower MAGI. But which ones can?

Hello again whorl,

The problem is that there really are no stand alone deductions that reduce your MAGI. It really works in almost the opposite way, in the sense that the items I listed earlier actually increase your MAGI.

In other words, you start out with using your regular adjusted gross income, and then you must add to that any of the above listed items that you may have claimed a deduction for. There is nothing that you can deduct that will reduce your MAGI, unless you can reduce your regular AGI.

The only way to actually reduce your MAGI is to reduce your regular AGI, which basically means having less income from wages, or a loss from self employment or other non passive business activities, or having less interest income to report, or less of any income to report.

Some of the items you mentioned earlier such as mortgage interest, medical expenses, charitable contributions, etc. -- those are all part of your itemized deductions and have nothing to do with reducing your MAGI.

If you look at Form 1040, look at the very first page which goes through line 37. It is only items listed on that first page which figure in to your MAGI. You would basically take the amount on line 37 and then add back in any of the above deductions. Any deductions taken on page 3 of the Form 1040 do not qualify.

Most of the deductions you take are things that compromise your itemized deductions, and they have no effect whatsoever on reducing your MAGI. They only reduce your taxable income, which is not the same thing.

Thank you whorl.

Customer: replied 8 years ago.
One last question - just want to make sure loss from self employment can be used to lower MAGI? which schedule is that? Thanks.
Hello again whorl,

Loss from self employment can be used. It actually lowers your regular AGI, which in turn, makes your MAGI lower.

If you are self employed, your income from self employment is reported on Schedule C. On that same schedule C, you would then report any expenses you had in connection with your self employment. Your net income or loss is then reported on Form 1040, line 12.

Thank you whorl.

Merlo and 2 other Tax Specialists are ready to help you
Customer: replied 8 years ago.
Thanks. Many deductions would lower regular AGI but got added back thus it's no help on lowering MAGI.

I assume self employment losses are not one of the items/deductions that would get added back. Please correct me if I am wrong.
Hello again whorl,

That is correct. If you have a loss from self employment, that does not get added back in when figuring your MAGI.

Customer: replied 8 years ago.
Hi Merlo, unfortunately Schedule K-1 losses don't need to get added back so it can be used to lower MAGI. Many of your answers were actually misleading which caused me to spend even more time to research. My purpose of using Justanswer is to save myself time.

I wonder if you are willing to give me refund of this question?
Hello again whorl,

I am sorry if you had a problem with my answers, but if you will look at my very first answer to you, I said that K-1 losses could be used to lower your MAGI. I never said that they were added back in.

I gave you a complete list of what did need to be added back in and also gave you a direct link to the section of the IRS website which backed up that response.

I will still be happy to request a refund on your behalf, as JA does not want any of the customers to not be totally satisifed. I do not personally have access to the funds that are paid to this site. That is all taken care of by the JA administrators, but I will forward them your refund request and I am certain they will take care of this for you.