AGI and FEIE

If you have foreign earned income and take the foreign earned income exclusion, does this increase your AGI?
My specific question at the moment is how it would affect ability to
deduct passive activity losses, although it could of course affect other things.
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No.
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ArtKamlet at a o l dot c o m Columbus OH K2PZH

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On Jun 29, 1:47pm, snipped-for-privacy@panix.com (Arthur Kamlet) wrote:

Thanks, Arthur.
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On 7/5/11 10:03 AM, Hank Youngerman wrote:

Arthur answered your question as asked. However, I'm not sure the question asked is what you really wanted to be answered. I say this, because the foreign earned income exclusion goes on Line 21 of the 1040 as a negative number. By definition, anyone who takes the exclusion lowers their reportable income. So.. why would anyone ask if AGI goes up if you are reducing your reportable gross income?
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Passive losses are deductible against passive income. Suspended passive losses are deductible in the year in which the related activity is disposed of.
The existence of foreign earned income or the use of the foreign earned income exclusion does not affect the amount of a passive loss that is deductible in the current year. However, the current usefulness of a passive loss that becomes deductible in the year in which an FEIE is taken may be sharply reduced.
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I have a rental condo in which I actively participate in the management, so I can take passive losses as long as my AGI is low enough. My passive losses are not very large anyway. I am thinking of buying another rental condo that would have larger passive losses, but still not all that high. I got married this year to a Canadian resident. Even though we were going to elect to have her treated as a resident alien (and she may actually have her green card by the end of the year anyway), she can still take the FEIE. I was trying to figure out if her income, even though it is all excludable, would make my passive losses nondeductible.
I may be in another conundrum, which is that I've seen some information that you can lose your residency status by not actually residing in the USA. So by claiming her to be a bona fide resident of Canada, that might indicate that she has abandoned her residency in the USA. But those kinds of questions are beyond the scope of this group. (I think she will be able to keep her residency though, as long as she has legitimate ties to the USA and comes her often enough. Most of the cases I've seen where people lost their green card were people who just kind of made token visits to the USA and didn't really have a home here.)
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wrote:

Just what U.S. residency is she losing? She's been residing in Canada and as you got married this year, I presume she's not been in the U.S [at least for a while] as a resident.
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Form 8582 "Passive Activity Loss Limitations" says in part II "Special Allowance for Rental Real Estate Activities With Active Participation"
says:
7. Enter modified adjusted gross income, but not less than zero (see page 9)
If this is between 100k and 150k then your loss is phased out.
BEGIN QUOTE http://www.irs.gov/instructions/i8582/ch02.html#d0e1156
Line 7. To figure modified adjusted gross income, combine all the amounts used to figure adjusted gross income except do not take into account:
* Passive income or loss included on Form 8582, * Any rental real estate loss allowed to real estate professionals (defined under Activities That Are Not Passive Activities on page 2), * Any overall loss from a PTP, * The taxable amount of social security and tier 1 railroad retirement benefits, * Deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, * The domestic production activities deduction, * The deduction allowed for one-half of self-employment taxes, * The exclusion from income of interest from series EE and I U.S. savings bonds used to pay higher education expenses, * The exclusion of amounts received under an employer's adoption assistance program, * The student loan interest deduction, or * The tuition and fees deduction.
Include in modified adjusted gross income any portfolio income and expenses that are clearly and directly allocable to portfolio income. Also include any income that is treated as nonpassive income, such as overall gain from a PTP and net income from an activity or item of property subject to the recharacterization of passive income rules.
When figuring modified adjusted gross income, include any overall loss from the entire disposition of a passive activity (considered a nonpassive loss).
END QUOTE
So it looks like you DO NOT have to add back your FEIC. This is strange as in many other cases, like the making work pay credit, you have to add it back.
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