I am a new subscriber to Pralana Online and am very impressed so far. While I certainly have much more to learn about the tool, I do have a question about how the phaseout of the OBBBA 2025-2028 extra deduction for seniors is implemented. To frame my question, I'm quoting a slightly longer excerpt of the statutory text than the excerpt quoted earlier in this thread:
(C) DEDUCTION FOR SENIORS.—
(i) IN GENERAL.—In the case of a taxable year beginning before January 1, 2029, there shall be allowed a deduction in an amount equal to $6,000 for each qualified individual with respect to the taxpayer.
(ii) QUALIFIED INDIVIDUAL.—For purposes of clause (i), the term ‘qualified individual’ means—
(I) the taxpayer, if the taxpayer has attained age 65 before the close of the taxable year, and
(II) in the case of a joint return, the taxpayer's spouse, if such spouse has attained age 65 before the close of the taxable year.
(iii) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.—
(I) IN GENERAL.—In the case of any taxpayer for any taxable year, the $6,000 amount in clause (i) shall be reduced (but not below zero) by 6 percent of so much of the taxpayer's modified adjusted gross income as exceeds $75,000 ($150,000 in the case of a joint return).
My question concerns whether the phaseout should occur twice as rapidly as currently implemented in Pralana Online when each member of a couple filing an MFJ return qualifies for a $6,000 deduction. The Metric MRI for this situation seems to indicate that the couple's combined $12,000 deduction is reduced by $6 for each $100 of MAGI exceeding $150,000, such that the combined $12,000 deduction would be completely phased out when their MAGI reaches $350,000. However, the phaseout clause doesn't refer to the combined $12,000 total for a couple; it refers only to the "$6,000 amount" for a qualified individual. By my reading of the phaseout clause, the $6,000 deduction of each member of the couple should be independently reduced by $6 for each $100 of MAGI exceeding $150,000, such that the couple's combined $12,000 deduction would be completely phased out when their MAGI reaches $250,000, not $350,000. I hope I've explained my question clearly enough to be understood - thanks for your attention!
@inquiringmind As we read the new law, the phaseout would be completed for a married couple when their MAGI reaches $250,000.
Stuart
Thanks for responding so quickly and confirming your interpretation of the new law, which I am relieved to find matches my interpretation. But in case my question wasn't clear about this point, Pralana Online is currently implementing the phaseout as if it would be completed for a married couple when their MAGI reaches $350,000, not $250,000, so the current implementation of this provision in the tool seems to be inconsistent with your intent.
The phaseout of $6,000 is $6 per $100. For a couple it is $6 for each, so it is $12 per $100. For a couple the deduction would be completely phased out when the MAGI reaches $250,000. Both single and couple have the same $100,000 phaseout. It seems not proportional (the phaseout for a couple should be $200,000). But apparently this is the new law. If a couple file their taxes as two separate individuals, they may use $100,000 phaseout for each.
Thanks for the reply. Your description of the phaseout for a couple as $12 per $100 of MAGI sounds right and is probably clearer than the way I tried to describe it in my question. However, regarding how the phaseout should work for a couple filing as two separate individuals, my understanding is that the deduction isn't allowed at all for members of a married couple unless the couple files a joint return.
Interesting! So, if a married couple file separately and each is above 65, they get nothing?
Correct, whether one member of a couple is 65+ or both members are 65+, if the couple files MFS instead of MFJ, then no $6,000 extra senior deduction is allowed. I'm copying an even longer statutory excerpt of the relevant OBBBA provision below. The clause that disqualifies MFS filers is (C)(v) at the bottom, the clause that starts with "MARRIED INDIVIDUALS".
(C) DEDUCTION FOR SENIORS.—
(i) IN GENERAL.—In the case of a taxable year beginning before January 1, 2029, there shall be allowed a deduction in an amount equal to $6,000 for each qualified individual with respect to the taxpayer.
(ii) QUALIFIED INDIVIDUAL.—For purposes of clause (i), the term ‘qualified individual’ means—
(I) the taxpayer, if the taxpayer has attained age 65 before the close of the taxable year, and
(II) in the case of a joint return, the taxpayer's spouse, if such spouse has attained age 65 before the close of the taxable year.
(iii) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.—
(I) IN GENERAL.—In the case of any taxpayer for any taxable year, the $6,000 amount in clause (i) shall be reduced (but not below zero) by 6 percent of so much of the taxpayer's modified adjusted gross income as exceeds $75,000 ($150,000 in the case of a joint return).
(II) MODIFIED ADJUSTED GROSS INCOME.—For purposes of this clause, the term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.
(iv) SOCIAL SECURITY NUMBER REQUIRED.—
(I) IN GENERAL.—Clause (i) shall not apply with respect to a qualified individual unless the taxpayer includes such qualified individual's social security number on the return of tax for the taxable year.
(II) SOCIAL SECURITY NUMBER.—For purposes of subclause (I), the term ‘social security number’ has the meaning given such term in section 24(h)(7).
(v) MARRIED INDIVIDUALS.—If the taxpayer is a married individual (within the meaning of section 7703), this subparagraph shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.
Another interpretation for C(v) can be that this subparagraph (6% or $100,000 phaseout total for a couple) applies only if they file jointly, but if they file separately then it does not apply and they are treated as individuals ($100,000 phaseout for each)
Here's a link to an H&R Block article saying that the $6,000 extra deduction for seniors isn't available for people filing with MFS status. It's a long article, but you can find this item by searching the article for the phrase "increased deduction for seniors".
One Big Beautiful Bill Act (OBBBA) Tax Impacts | H&R Block®
Amazing! What about couples that always file separately? It seems like severe discrimination.
@inquiringmind and all:
I confirm that when both persons are over 65 and MFJ, Pralana Online incorrectly reduces the combined $12,000 senior add-on by $6 per $100 over the $150K MFJ phaseout threshold. As David notes, it should be each person's $6,000 is reduced $6 per $100 over the $150K so that the total bonus would hit $0 at $250K
I just missed this on the initial roll-out and will make this change in the next release.
@inquiringmind Thank you for pointing this out!
Here is another reference confirming this. Our OBBBA Summary page links to this very good article:
https://www.kitces.com/blog/obbba-one-big-beautiful-bill-act-tax-planning-salt-cap-senior-deduction-qbi-deduction-tax-cut-and-jobs-act-tcja-amt-trump-accounts/
which says:
"Notably, for married couples who are both age 65+, both spouses' deductions are reduced simultaneously by the phaseout: For example, a couple with $200,000 of MAGI would have each of their deductions reduced by 6% × ($200,000 − $150,000) = $3,000, resulting in a total deduction of 2 × ($6,000 − $3,000) = $6,000."
Here is a OBBB review by Dana Anspach:
First great work here!
For your sensitivity analysis what do you assume for tax rates if OBBBA did not pass? Are you assuming they would have increased as the former law expired?
