Do simple 401k contributions reduce income for purposes of passive activity phase out?

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MikeZ
Posts: 475
Joined: Sun Dec 07, 2014 8:17 pm

Do simple 401k contributions reduce income for purposes of passive activity phase out?

Post by MikeZ »

I have some real estate losses and currently over the $150k income limit. My understanding per https://www.irs.gov/pub/irs-pdf/p560.pdf was the IRA contributions would not reduce my income for purposes of getting to deduct my losses. That said, I was confused if a Simple 401k would.
Lionel Hutz
Posts: 379
Joined: Sat Jan 30, 2021 12:18 pm

Re: Do simple 401k contributions reduce income for purposes of passive activity phase out?

Post by Lionel Hutz »

Whether you're referring to a SIMPLE IRA or Qualified plan (typically 401k), my understanding is yes those are true pre-tax contributions which will reduce your income.

Contrasted against Traditional IRA contributions as you pointed out, which may not be tax deductible above certain income limits.
MrJedi
Posts: 3538
Joined: Wed May 06, 2020 11:42 am

Re: Do simple 401k contributions reduce income for purposes of passive activity phase out?

Post by MrJedi »

I think what you are looking for is contained in form 8582 line 7, your MAGI. If you look in the instructions for this line, you will see that deducted traditional IRA get added back to AGI for your MAGI, but contributions to qualified plans like a 401k do not get added back.
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