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:: Passive Activity Loss ATG - Exhibit 2.2: Modified Adjusted Gross Income Computation   Table of Contents Exhibit 2.2: Modified Adjusted Gross Income Computation Modified adjusted gross income (MAGI) for FORM 8582 line 7 is determined by computing: AGI without: Any passive loss or passive income, or                             Any rental losses (whether or not allowed by IRC § 469(c)(7)),  or IRA, taxable social security or One-half of self-employment tax (IRC § 469(i)(3)(E)) 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) OR you can do the following alternative computation. If there are capital gains/losses from passive activities, use method above. Adjusted Gross Income Per Return                                                      _______________ + Audit Adjustments Affecting AGI                                                   +/-_______________    Except passive activities (rentals and passive businesses) - Taxable Social Security IRC § 86                                                   - ________________ + IRA Deductions   IRC § 219                                                           + ________________ + Deduction for 1/2 Self Employment Tax                                       + ________________ + Passive Losses IRC § 469(i)(E)(iv)                                              + ________________      Passive loss=Net rental loss  and      Passive Business Loss  (Excess passive losses after netting with passive income) + Rental Real Estate Losses per 469(c)(7) IR§469(i)(E)(iv)            + ________________ + Nontaxable Income from US Savings                                           + ________________    Bonds Used for Higher Education + Exclusion under IRC§137 for adoption expenses (W-2)              + ________________ + Student loan interest deduction                                                    + ________________ Modified Adjusted Gross Income Form 8582                             = ________________   MODIFIED ADJUSTED GROSS INCOME COMPUTATION NOTES REMINDERS: The MAGI includes non-passive losses and  non-passive income on the back of Schedule E. Net income from self-rented property or net income from leased land, which are non-passive, increase MAGI. Rental losses allowed for real estate professionals do not reduce MAGI. You can tell if the taxpayer is a real estate professional via the last line on the back of Schedule E. DISPOSITIONS:  If there is an overall loss after considering current and suspended losses against gain on disposition, the loss is non-passive.  See IRC § 469(g).  Thus, it enters into the modified AGI computation, and will reduce income, just as another non-passive loss would.  Stated differently, both the income and the losses enter into the MAGI computation.   If there is an overall gain after considering current and suspended losses against gain on disposition, neither the gain nor the losses should be considered in computing MAGI.  The reason is because the net gain constitutes passive income under Reg. §1.469-2T(c)(2). Exceptions to MAGI rule: The deduction equivalent of the rehabilitation credit is phased out beginning at $200,000 of MAGI.  Even a limited partner may take the rehabilitation credit.  There is no participation requirement for the low income housing credits (LIHC), rehabilitation credits, or for the commercial revitalization deduction.  See IRC § 469(i)(6)(B). There is no phaseout range for the LIHC, i.e. any taxpayer can take the LIHC, including a limited partner.  See IRC § 469(i)(3)(c)(D).  Furthermore, for both the rehabilitation credit and LIH, even a limited partner may use the $25,000 offset.  Both of these credits impact FORM 8582-CR, not Form 8582. A real estate professional, who materially participates in each rental (including LIH and rehabilitation activities) may deduct all current losses without limitation.  However, even if the taxpayer is a real estate professional, many LIH and rehabilitation interests are owned via a limited partner interest; thus losses from these activities generally will still be subject to the same passive loss rules.  For rental losses which are allowed by virtue of the real estate professional rules, those losses increase MAGI.  Thus, raising the amount and very possibly limiting the amount of $25,000 offset available.   See IRC § 469(i)(3)(E)(iv). There are special rules for taxpayers who file married filing separately.  See IRC § 469(i)(5). There is no phaseout for the commercial revitalization deduction.  See IRC § 469(i)(3)(c).

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