Interesting tax question

To All:

Looks like we've finally got this figured out!

But what we cannot forget is that if the amount that has to be repaid is $3000 or less and has to be reported as a deduction subject to the 2% AGI floor, the taxpayer can still be whacked even when the

2% AGI floor does not reduce the deduction. Why? Because $3000 of income can produce more than $6000 of taxable income because the $3000 is included in the AGI phase-out calculations that are part of almost 30 provisions in the Tax Code related to deductions, exemptions, exclusions, credits, etc. Thus the taxpayer can pay tax on more than $6000 on the $3000 of income that has to be repaid and get a $3000 deduction or if the deduction is phased-out by the 2% AGI floor he/she may get zippo benefit when the $3000 is repaid.

So at the 25 percent tax rate, the taxpayer can get whacked for $1500 in taxes with "illusory income". Do we have a great Congress or what?

And compare that with the instructions that IRS has derived from section 56(b)(1)(D). See line 7 on Form 6251 and consider what happens when the refund is from a year when the regular tax was paid. Deduction for the tax overpayment and then exclusion of the refund from AMTI.

Cheers,

WDK

Are we entering the third and final year of the phase-out of the phase-out? Meaning no more phase-outs?

What 'chu talking bout, Art? Anything other than the phase-out of the exemption phase-out? Phase-out up to 85 percent of the Social Security benefit exclusion and the phase-out of medical and miscellaneous expense deductions due to the thresholds can more than double the taxable income attributable to income at the margin.

Cheers,

WDK

... and the phase-out of the phase-out (down) of total itemized deductions.

Cheers,

WDK