Exemptions Phased Out for High AGI | CTFA Exam Question Answer

Exemptions Phased Out for High AGI

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Exemptions are phased out and eliminated altogether for taxpayers with high levels of AGI. After adjusting for inflation it applies to single taxpayers with 2008 AGI:

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A. B. C. D.

B

The question is asking about the phase-out and elimination of exemptions for taxpayers with high levels of AGI (Adjusted Gross Income) in 2008, adjusted for inflation.

AGI is calculated by subtracting certain deductions from gross income, and is used as a starting point for calculating a taxpayer's taxable income. Exemptions are deductions from taxable income for the taxpayer and each of their dependents.

The answer choices are: A. Under $159,950 B. Over $159,950 C. Equal to $179,950 D. Over $189,950

To determine the correct answer, we need to know the phase-out threshold for exemptions in 2008 and adjust it for inflation. The phase-out threshold is the AGI level at which exemptions begin to be reduced, and it is gradually reduced to zero as AGI increases.

According to the IRS, in 2008 the phase-out threshold for exemptions was $159,950 for single taxpayers. Adjusting for inflation using the Consumer Price Index (CPI), which measures the cost of goods and services, the equivalent threshold in 2023 would be approximately $196,079.

Therefore, the correct answer is A. Under $159,950, since this is below the adjusted threshold of $196,079. This means that taxpayers with AGI under $159,950 in 2008 would not have their exemptions reduced or eliminated due to the phase-out. Taxpayers with AGI over this amount would have their exemptions reduced or eliminated based on a formula that takes into account their AGI and the number of exemptions they are claiming.