Case Study - Phaseout of Exemptions

Lincoln and Shabona Park are married and have one child, Grant. The Parks file a joint return and have a joint adjusted gross income of $232,950. They claim three exemptions. The reduction of the Parks' exemptions for 2005 will be calculated as follows:

The $14,500 figure is divided by $2,500 to reach the result of 5.8. Rounding up 5.8 to the nearest whole number gives us 6. 6 x 2% = 12%, which is the percentage of their exemptions that the Parks will lose.

Because the Parks would have an unreduced exemption amount of 3 x $3,200 = $9,600 for 2005, and 12% x $9,600 = $1,152, the Parks may claim exemptions of only $8,448 ($9,600 - $1,152).