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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: doneby35 on January 06, 2017, 08:24:45 PM

Title: Ending 2016 correctly
Post by: doneby35 on January 06, 2017, 08:24:45 PM
Here's an overview of my 2016:
1. Earned income from job was 106,000.
2. Capital short term gains (6500) - capital short term losses (2500): 6500 - 2500 = 4000
3. Sold a house for 330,000 before hitting the 2 year mark to not pay tax on the gains (initially bought it for 320,000)
4. Contributions to 401k: 8500

I'm trying to figure it out if I can contribute to traditional IRA for 2016 and deduct it. I'll be filing jointly and my spouse is unemployed. I know I can contribute the max for her and be able to deduct all of it, but will I be able to do the same for myself?
Title: Re: Ending 2016 correctly
Post by: SKL-HOU on January 06, 2017, 08:27:40 PM
I thought you didn't pay tax on the gains if you held the house for more than 2 years, not the other way around?
Title: Re: Ending 2016 correctly
Post by: terran on January 06, 2017, 08:32:42 PM
Looks like an AGI of $111,500 which is well above the limit for a deductible tIRA for married filing jointly since you have a retirement plan at work.
Title: Re: Ending 2016 correctly
Post by: doneby35 on January 06, 2017, 08:49:53 PM
Correct, I did not hold the house for 2 years, therefore I'm assuming i would be paying capital gains tax on the $10,000.
Should I be contributing to a roth IRA instead? or should I just contribute to the 2017 traditional IRA? (2017 will be back to normal as far as me being below the limit for full deductibility)
Title: Re: Ending 2016 correctly
Post by: terran on January 06, 2017, 08:54:04 PM
I would do the roth. Use it or lose it. Then you have almost 18 months to fund a 2017 IRA (and maybe get more into the 401k too?).
Title: Re: Ending 2016 correctly
Post by: MDM on January 06, 2017, 09:35:49 PM
See Publication 590-A (2016): tIRA MAGI calculation (https://www.irs.gov/publications/p590a/ch01.html#en_US_2016_publink100025076).

If you are below $98K you can deduct the full $5500.

If you are above $118K you can't deduct anything.

If you are above $98K but below $118K you can deduct ($118K - MAGI) / ($118K - $98K) * $5500.