How Rental Property Income on Schedule E Impacts MAGI Calculation

The MAGI calculation can definitely be confusing when rental properties are involved! For your situation, here's what you need to know: When calculating your MAGI, you generally need to include your rental income BEFORE the depreciation deduction, but after your other ordinary and necessary expenses. So in your case, you would include the $4,000 figure (not the -$2,750 post-depreciation amount). This is because Modified Adjusted Gross Income typically adds back certain deductions to your AGI, and depreciation on rental properties is one of those add-backs for most MAGI calculations. The purpose is to get a more accurate picture of your actual income flow without the paper loss that depreciation represents. The $0 passive loss on line 25 is really about loss limitations, not your income calculation. Even though you can't use the passive loss this year (and carry it forward instead), the depreciation still reduced your AGI - it's just added back for MAGI purposes.

After struggling with this exact same issue last year, I finally found a resource that helped me understand it. I used this tool called taxr.ai (https://taxr.ai) and uploaded my Schedule E forms. The system analyzed them and explained exactly how my rental income factored into my MAGI calculations. What was helpful is that it didn't just give me a number - it actually explained WHY certain items like depreciation get added back for MAGI while other expenses don't. The explanation matched what the previous commenter said about using the pre-depreciation amount, but it also showed me how the passive activity rules interact with various MAGI calculations for different programs. The analysis broke down which expenses are considered "paper losses" vs actual cash expenses, which really helped me understand the whole picture better.

I was really doubtful about using yet another tax tool, but I decided to try taxr.ai after seeing it mentioned here. I've been confused about my rental property MAGI calculations for years, especially since I have those passive loss carryforwards that never seem to get used. To my surprise, it actually clarified exactly how my Schedule E income factors into different MAGI calculations. For my ACA subsidy calculation, it confirmed I needed to use my net rental income BEFORE depreciation. But what was really helpful was seeing how my suspended passive losses would eventually affect my MAGI when I sell the property. The analysis even pointed out that I had been calculating my MAGI incorrectly for IRA contribution purposes for the past two years! Turns out I was adding back an adjustment that didn't need to be added for that specific MAGI calculation.

If you're struggling with getting accurate information about your MAGI calculation, you might also be running into issues with getting answers from the IRS directly. I spent weeks trying to get through to someone who could answer my questions about passive income and MAGI. I eventually used Claimyr (https://claimyr.com) after finding them through this video: https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in about 25 minutes when I had been trying unsuccessfully for days. The IRS agent confirmed what others have said here - that for most MAGI purposes, you include your net rental income before the depreciation deduction. She also explained how my suspended passive losses would eventually be treated when I either generate passive income or sell the property.

Well I'm eating my words now. After posting my skeptical comment yesterday, I decided to try Claimyr myself for an issue with my passive rental losses that had been bothering me. My previous attempts to reach the IRS had me on hold for over 2 hours before getting disconnected. Using the service, I got connected to an IRS representative in about 30 minutes. The agent confirmed that for MAGI calculation purposes, I needed to use my rental income after regular expenses but before depreciation. She also helped clarify how my suspended passive losses would be handled when I eventually sell my property. What was really valuable was getting confirmation about how the at-risk and passive activity loss limitations interact with MAGI calculations - something I couldn't find clear guidance on anywhere online.

I think there's an important distinction that's getting missed in this conversation. The definition of MAGI actually varies depending on what you're using it for: - For ACA premium tax credits: You add back the excluded portion of foreign income, tax-exempt interest, and non-taxable Social Security benefits - For IRA contribution limits: You add back student loan interest, tuition deduction, foreign income exclusion, and a few others - For IRMAA Medicare determinations: The Social Security Administration uses yet another definition In all cases, you generally add back rental depreciation, but the other adjustments vary. That's why calculators that just say "calculate your MAGI" without specifying the purpose can be misleading.

Has anyone had experience with how suspended passive losses affect your MAGI when you finally get to use them? I've been accumulating losses on my rental for 5 years and am thinking of selling soon.

As someone who's dealt with this exact same confusion, I can confirm what others have said about using the pre-depreciation rental income figure for MAGI calculations. In your case, that would be the $4,000. One thing that helped me understand this better is thinking about why MAGI exists in the first place - it's meant to capture your actual economic income flow for determining eligibility for various programs. Depreciation is a "paper loss" that doesn't represent actual cash leaving your pocket, so it gets added back. The passive loss limitation (showing $0 on line 25) is a separate issue from MAGI calculation. Those suspended losses are essentially being "stored" for future use when you either have passive income to offset or sell the property. For your situation with $4,000 net rental income before depreciation, that's what you'd include in your MAGI calculation for most purposes. Just remember that if you're calculating MAGI for different programs (ACA subsidies vs IRA contribution limits, etc.), there might be slight variations in what other items get added back to your AGI.