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.