Question

Jim and Martha are married taxpayers with $404,000 of adjusted gross income in 2017. They are allowed two personal exemptions. What is the amount of each of their $4,050 exemption deductions after applying the phase-out for high-income taxpayers? a. $0 b. $972 c. $1,053 d. $3,002 e. $4,000

Answer 1

B)$972

Ifa taxpayer's AGI exceeds the threshold amount, the exemption deduction is reduced by 2 percent for each $2,500 ($1,250 for married taxpayers filing separately) or fraction thereof by which the taxpayer's AGI exceeds the threshold amount.

Married filing jointly, $309,900

Jim and Martha are married taxpayers with an AGI of $404,000. They are entitled to two exemptions worth $8,100 ($4,050 x 2). Because their AGI exceeds the 2017 threshold amount for their filing status, the exemption amount are subject to the phase out.
Each exemption of $4,050 must be reduced by $3078 (76% x $4,050).

The 76% is calculated as follows:

Step 1. ($404;,000 AGI - $309,900 Threshold) / $2,500 = 37.64

Step 2. 37.64 x 2% = 76%

Therefore, the amount allowed for each exemption is $972 ($4,050 - $3078).

Thanks

Let me know if you have any doubt