Municipal Bonds and MAGI?

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Municipal Bonds and MAGI?

Postby clarkrobertf » Wed Aug 03, 2011 2:42 pm

Question: Do Municipal Bonds raise MAGI? (also, what about AGI?)

Scenario:
Right now I am doing attempting to do a balancing act between having enough room to write off passive real estate losses while being close to the phase out limit of $150,000. I have some excess cash and have been wanting to invest it in an after tax vehicle that will not make me ineligibility for the real estate write off.

Just for reference if it matters, the Municipal Bond fund I am looking at is VWITX

Thanks for the help.
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Postby MarkNYC » Wed Aug 03, 2011 4:03 pm

Income from municipal bonds does not increase Adjusted Gross Income.

The term "modified adjusted gross income" (MAGI) has several different definitions, depending on which tax calculation it is being applied to. For the limited exception to the passive loss rules for rental real estate in which the taxpayer actively participates, MAGI does not include municipal bond income. The following income/loss items are also disregarded for that specific MAGI calculation:

1. Any other passive income or loss allowed
2. Taxable amount of social security
3. Deductions allowed for IRA contributions and certain other retirement plan contributions
4. Deduction for 1/2 of self-employment tax
5. Deductions allowed for student loan interest, and tuition/fees
6. ( a few other less common items)
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Postby etarini » Wed Aug 03, 2011 4:43 pm

Also, while municipal bonds do not increase AGI, some are subject to AMT.

Historically, VWITX (Investor shares)/VWIUX (Admiral shares) have NOT had holdings subject to AMT, even though the prospectus does permit the manager to hold up to 20% of AMT bonds.

Eric
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