What if your client has large itemized deductions, so large that they reduce taxable income substantially? Will that reduce his modified adjusted gross income for the 3.8% surtax?
The answer is no. Itemized deductions are known as below the line deductions. They do not reduce adjusted gross income and, in turn, do not reduce modified adjusted gross income. But, investment interest expense would reduce investment income for purposes of the 3.8% surtax, since the surtax is based on net investment income.
Ed Slott, a CPA in Rockville Centre, N.Y., is a Financial Planning contributing writer and an IRA distribution expert, professional speaker and author of several books on IRAs.