Adjusted Gross Income (AGI)

Definition of "Adjusted Gross Income (AGI)"

Dale Tomalewski  real estate agent

Written by

Dale Tomalewski elite badge icon

Coldwell Banker Real Estate Services Inc.

We all know what income is or what gross income means, but what is adjusted gross income? When a company calculates its income to determine their taxable income, they take the gross income to measure their adjusted gross income (AGI). The AGI is where the calculations begin for a taxpayer’s tax bill and the baseline for most deductions and credits. When a taxpayer files their taxes online, the software will calculate their AGI for them. 

The adjusted gross income measure of calculation is used to calculate a filer’s tax liability. In active participation, an AGI can make an active participant investor in real estate eligible or not for deductions and influences the claims for deductions and credits.

What does Adjusted Gross Income Mean?

To simplify it, an adjusted gross income is the gross income modified in the tax code. While gross income is the money earned during a year (salary, capital gains, dividends, interest income, alimony, rental income, royalties, and retirement distributions), the AGI considers allowed deductions from the gross income to determine the figure the income tax liability is calculated.

For tax activities, the most useful measure of calculation is the AGI, as deductions are taken out of the gross income. Those deductions are known as adjustments to an individual’s income.

How to calculate Adjusted Gross Income?

The start of the adjusted gross income calculation starts with adding all sources of income from that year. Here we’ll have salaries, profit from a property sale, pensions, unemployment compensations, Social Security payments, or other income types that weren’t reported in the tax returns. From this, the taxpayer subtracts allowed deductions and payments. That leaves a taxpayer with their adjusted gross income.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

The profit or loss from selling an investment that is held one year or less. Short-term gains are ordinary income, while short-term losses are deducted from current income. Short-term gains ...

Adobe construction is one of the oldest types of construction that has been used in the Americas, ancient Egypt, and the Middle East to build long-lasting structures that can be seen even ...

Negative characteristics about real property which do not meet the needs of the usual occupant. Examples are inadequate lighting in the rooms and a one-car garage when a two-car garage is ...

Contractual agreement between a commercial or industrial rental property owner and an individual or firm who agrees to maintain the property. Management agreements specify the nature of ...

Geographic location by itself with designated boundaries. An example is a district. ...

Fee a borrower is assessed for the right to make a loan payment before the due date. An example is the prepayment charge for paying-off a mortgage early. ...

Construction method where reinforced concrete is used with concrete block and mortar to form an extremely strong building. Reinforced concrete construction is often used in conjunction ...

Rule of thumb approach used to determine how long it takes to double an investment in real estate. Under this approach, dividing the number 72 by the fixed rate of return equals the ...

There’s a lot of confusion regarding the hazard insurance definition. Many people think it’s a synonym for homeowners insurance but they’re wrong. Hazard insurance is ...

Popular Real Estate Questions