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As the catastrophic Los Angeles wildfires continue to burn, residents are grappling with a range of emotional, physical, and financial challenges. Whether it’s a wildfire, hurricane, flood, or other calamity, taking advantage of government resources and managing your finances effectively can be an important part of recovering and rebuilding. Here’s what you need to know to secure assistance from the Federal Emergency Management Agency (FEMA), how to protect your finances during and after a disaster, and where to turn for current and credible information.

Navigating FEMA Disaster Relief

FEMA can provide critical resources to individuals and businesses affected by federally declared disasters. These may include financial assistance for temporary housing, home repairs, and medical expenses as well as childcare and transportation – if they’re not already covered by insurance. Here are the key steps to kickstarting that process:

•   Confirm federal eligibility: The LA Wildfires have already been declared a federal disaster. You can learn more about this designation on FEMA’s website.

•   Register with FEMA: Apply online at disasterassistance.gov, via the FEMA app, or by calling 1-800-621-3362. You will need to provide details like your Social Security number, insurance information, address, and a description of damages.

•   Document your possessions: Take photos and videos of the damage, and keep receipts for any expenses incurred as a result of the disaster. Learn more about how to do this.

Note that you may also be eligible for a special low-interest disaster loan via the Small Business Administration – even if you don’t have a business. You can find more information about that here.

Managing Your Finances After a Disaster

Managing your finances can be especially difficult in the aftermath of a disaster, given all of the demands on you. First, prioritize essential expenses like housing, food, and medical needs. Once the basics are under control, here are some steps to help you regain your footing:

Communicate with Creditors

Inform lenders, credit card companies, and utility providers about your situation. You can request a payment deferral, reduced interest rate, and other accommodations. Here are the phone numbers to get support for SoFi financial products:

•   SoFi Customer Support: 855-456-7634

•   Home Loans: SoFi Mortgage Servicing at 855-622-3198

•   Student Loans: MOHELA at 855-456-7634

•   Personal Loans: SoFi Servicing at 855-456-7634

•   Credit Card: SoFi Servicing at 844-945-7634

File Insurance Claims Promptly

Contact your insurance provider to report damages, and provide detailed documentation to expedite claims processing. Here are tips to guide the documentation process.

Create a Recovery Budget

As best you can, inventory your anticipated expenses related to the disaster.

Seek Additional Resources

•   Nonprofits: Groups like the Red Cross and Salvation Army may offer financial aid and supplies.

•   State and local programs: Many states and municipalities may offer supplemental assistance.

•   Community support: If you’re considering a charitable donation, check out this piece by the LA Times which provides an overview of credible organizations. And you can always vet charities using tools like Charity Navigator or the Better Business Bureau.

Monitor Your Credit

Disasters may increase the risk of identity theft. Regularly check your credit report for inaccuracies or suspicious activity. SoFi offers free credit monitoring, which you can sign up for here.

Stay vigilant. Scammers often try to take advantage of natural disasters, so be cautious of unsolicited offers or requests for personal information.

Where To Go For More Information

The LA Times has published a number of informative articles addressing frequently asked questions:

•   I Was Forced to Evacuate My Home. Do I Still Need to Pay My Mortgage, Rent, Utility Bills?

•   Fire Victims Can Get Aid from the Feds. How to Apply For FEMA and Avoid Potential Scams

•   L.A. Wildfire Resource Guide: How to Stay Safe, What to Do and How to Help

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Photo credit: iStock/CampPhoto

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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A low-income home loan is designed to make it possible for borrowers with lower income levels to meet their goals of homeownership. Typically, low-income mortgage programs help borrowers overcome a variety of barriers. Alongside those with a low income, these programs can help if someone has a poor credit score, large amount of debt, or a small down payment.

This guide takes a closer look at such details as:

•   How home loans for low-income borrowers work

•   Examples of these programs

•   How to buy a home when someone has a low income.

What Is a Low-Income Home Loan?

When it comes to home loans with low income requirements, these programs tend to have more relaxed income, credit, and down payment requirements than conventional loans. Other advantages of these programs can include lower interest rates, discounted mortgage insurance, and reduced closing costs.

Many low-income loan programs actually have income limits that prohibit those with higher incomes from qualifying. These programs can make it much easier to qualify for a mortgage when someone has a lower income, but they do still need to be able to afford the cost of their monthly payments.

Some of these programs are specifically designed to help first-time homebuyers, and there can be grants, tax credits, and other types of assistance available to new homeowners.

An April 2024 SoFi survey of 500 would-be homeowners suggests that there is significant need for programs for low-income buyers, yet not enough people are aware of them: Respondents named home availability in their price range as their top concern, and one in five people (19%) said they were not at all optimistic that they would find a home in their budget within the next six months. Yet when asked about their awareness of financing options for buyers with lower incomes, there was widespread lack of knowledge, with one in eight buyers not aware of any of the programs.


💡 Quick Tip: SoFi Home Loans are available with flexible term options and down payments as low as 3%.*

Examples of Low-Income Home Loans

There are a few different types of home loans for low-income borrowers. Here are a few popular examples:

•   United States Department of Agriculture (USDA) loans. Even with a low income, it’s possible to qualify for a USDA loan if the borrower plans to buy a home in an eligible rural area. As a bonus, this program doesn’t require a down payment.

•   Federal Housing Administration (FHA) loans. These government-backed loans tend to come with lower credit score requirements than conventional loans and only require a 3.5% down payment, no matter what the buyer’s income level is.

•   Veterans Affairs (VA) loans. Active service members, veterans, and potentially surviving spouses can use a VA loan to buy a home without making a down payment.

How Do Low-Income Home Loans Work?

How low-income home loans work depend entirely on the specific loan program the borrower is applying to. For example, with FHA low-income home loans, borrowers must make a 3.5% down payment, but income levels don’t make borrowers ineligible for a loan.

VA loans on the other hand don’t require a down payment at all. It’s best for mortgage seekers to do careful research on each loan program to confirm if they qualify for a mortgage or not.


💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

Pros and Cons of Low-Income Home Loans

Home loans for low-income families come with some unique advantages and disadvantages worth keeping in mind.

Pros of Low-Income Home Loans

First, consider the upsides:

•   Low to no down payment requirements

•   Easier to qualify for than conventional loans

•   Less strict credit score requirements

•   May have more favorable interest rates.

Cons of Low-Income Home Loans

Next, review the downsides of these loan programs:

•   May only work for specific applicants (like VA loans)

•   May require ongoing mortgage insurance

•   Can be harder to find low-income loan programs.

Are Low-Income Home Loans Worth It?

Low-income loan programs can be worth it if the math makes sense. It’s generally a good idea to shop around with different lenders to see which mortgage loan will be the most beneficial. It can be a good idea to compare different interest rates, mortgage insurance requirements, and fees to see which loan will cost the least.

Borrowers can research a variety of loan programs to see which may best suit their needs. For example, home loans for low-income single mothers, home loans for low-income seniors, or low-income home improvement loans are designed for different borrowers.

Steps for How to Buy a House With a Low Income

When a borrower has a low income, there are steps they can take to make buying a house easier.

•   Build one’s credit score. The higher someone’s credit score is, the easier it can be to qualify for a home loan. It’s a good idea for borrowers to check their credit score to see where they stand and if there are any mistakes on their credit report that might be harming their credit score. Consumers will want to consistently pay their bills on time if they want to help build their credit score before buying a home.

•   Pay off debt. Another technique that can help build a credit score is to pay off debt. This can be beneficial to one’s score, and the less debt someone has, the easier it can be to qualify for a home loan. Lenders take a borrower’s debt-to-income (DTI) ratio into account when deciding how much money to lend them and the lower this ratio is, the better.

•   Save for a larger down payment. The larger someone’s down payment is, the less money they need to borrow. When someone has a low income, it’s easier to qualify for smaller loans. Conventional wisdom may be that they will put down at least a 20% down payment, even if the low-income mortgage loan program doesn’t require that large of a down payment.

Recommended: What Is a HUD Home?

Low-Income Home Loan Tips

If someone is struggling to qualify for a low-income home loan, these are some steps they can take to make the process easier.

•   Find the right program. To start, finding a niche program designed to meet the applicant’s specific needs can help. For example, a single mother may want to look into low-income home loans for single mothers, as well as more general loan programs.

•   Use a cosigner. If someone’s credit score or income makes it challenging for them to qualify for a mortgage, they can apply with a cosigner who has the qualifications lenders are looking for. The cosigner needs to know they will be responsible for making payments if the main borrower defaults on the loan.

The Takeaway

While income is a major factor that mortgage loan lenders take into consideration, having a low income doesn’t need to disqualify someone from qualifying for a mortgage loan. There are low-income loan programs that can help consumers meet their goals of homeownership.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can I buy a house if I make $25k a year?

Whether or not someone can buy a house with only a $25,000 a year income depends on a few different factors. The overall cost of the house, their down payment amount, and the lender they choose to work with can all impact if their income will make it possible to qualify for a loan.

What’s the lowest score you can have to get a home loan?

Generally borrowers need to have a credit score of at least 620 to buy a home. All lenders and loan programs have different requirements though, so it’s worth researching the loan programs that work for each applicant’s credit score.

Is there an income limit for first-time homebuyers in California?

Some first-time homebuyer programs in California have income limits. These limits exist to stop buyers who have high-income from taking advantage of programs designed to support low-income buyers.

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Photo credit: iStock/digitalskillet

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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The total number of homes for sale hit a record low in August 2023. That means home sellers may get several offers when they put their house on the market.

To help stand out from the pack, some buyers choose to write an offer letter. They may believe an offer letter could help personalize the negotiation and possibly make a connection with the seller. But writing an offer letter comes with potential risks buyers should be aware of.

Thinking about writing an offer letter? Read on to learn how to write an offer letter for a house, what to say in the letter, what to avoid, how long the letter should be, and the risks that may be involved.

What Is a House Offer Letter?

A house offer letter is a personal letter written in hopes of helping to convince the seller to choose the buyer’s offer, especially when there are multiple offers on a house.

Offer letters have become more popular in recent years due to the high number of real estate bidding wars.

In an offer letter, a buyer, whether they’re a millennial homebuyer or any homebuyer, is trying to show the seller why they’re the ideal candidate for the house.

When writing a real estate offer letter, buyers often include certain details to help make a connection with the seller, such as:

•   Introductions. The potential buyer will want to say who they are, of course.

•   Contract details that might help. Buyers may want to briefly note that they’ve been pre-approved for a mortgage, are flexible with the closing date, or can otherwise meet the seller’s needs.

•   Compliments about the house. If there’s a well-tended garden or custom wall finishes, a buyer may want to note how much they like those things.

•   Points of connection. If a buyer noticed something in the house that could help them relate to the seller, like fishing gear in the garage or a piano in the living room, they might mention that they share those hobbies.

•   Explanation about their offer. A buyer could include the reason why they offered what they did for the house, but anyone who does this should be careful. Review it with your agent first to make sure you’re not saying something that might jeopardize the deal.

•   Thank them. Express gratitude to the seller for considering the offer.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

How Does a House Offer Letter Work?

Since an offer letter is an informal gesture, writing such a letter is optional. Plus offer letters do have drawbacks (more on that below).

If a buyer does write an offer letter, it would typically be sent, along with the formal offer on the house, to the seller’s agent.

Recommended: How to Write a Letter of Explanation for a Mortgage

Is It Worth It to Write a Letter With a House Offer?

A personal letter could help you stand out from others who are bidding on a house, but there’s no guarantee of that. Plus, an offer letter could cause problems. The National Association of Realtors is wary of offer letters because they might run the risk of violating the Fair Housing Act, even unintentionally. The Fair Housing Act seeks to create a level playing field for all people renting or buying a home, getting a mortgage, or seeking housing assistance.

For that reason, your real estate agent may advise against writing an offer letter. Instead, they may suggest that you choose another strategy for making your offer on a house more attractive.

How Long Should a House Offer Letter Be?

If you do decide to write an offer letter, the letter should be short and succinct. One page is plenty. And if your bid isn’t competitive enough to be on the seller’s radar in the first place, the offer letter probably won’t even be read.

What Should Not Be Included in a House Offer Letter

Perhaps even more important than what you write in your offer letter is what you should not include. Stay away from:

•   Overly saccharine statements. Sellers may get overwhelmed by buyers who are too profuse about their love for the property. Be complimentary, but don’t overdo it.

•   Letters that are too long. The seller doesn’t need to know everything you love about the house. Offer letters are more effective when they’re a page or less.

•   Too much personal detail. If you mention your partner or children, be aware that familial status is protected against discrimination under the Fair Housing Act. It’s wise not to share too much.

•   A picture of yourself or your family. This is another red flag. Race and gender, among other things, are protected against discrimination under the Fair Housing Act.

💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

How Do You Write a Strong Offer Letter?

First, make sure your home contracts offer is strong. You want to submit a strong offer before you work on a letter.

Then, when you sit down to write the letter, consider this: If you were having a conversation with your seller about the house, what would you want to tell them? Explain briefly why you love the home, and thank them for considering your offer. Keep the focus of the letter on the house, and avoid giving too many personal details. Use a friendly tone, and be genuine and sincere.

Keep the letter to one page or less.

Recommended: Guide on How to Save Money for a House

Tips for Buying a Home

Rather than an offer letter, you may want to consider one of the following strategies instead:

•   Submit a higher offer. Winning a bidding war often comes down to one factor: price. Offering a higher price for the house is an option to think about. You might also want to add an escalation clause, which can automatically increase your offer above other offers.

•   Offer all cash. That is, if you have the resources to do this. Data from Redfin suggests buyers who offer all-cash are two to four times more likely to be chosen.

•   Waive the financing contingency. Waiving this contingency could potentially increase your odds of winning the contract over other buyers, according to Redfin. Keep in mind, however, that waiving the financing contingency means you forfeit your earnest money if you can’t get financing before the contract deadlines.

And, finally, if you’re a first-time home buyer, you may want to look into first-time homebuyer programs that could be helpful to you in your quest to buy this particular home — or any home.

The Takeaway

Offer letters have become popular in recent years as the real estate market has heated up, but these letters do have drawbacks. They could even run the risk of violating the Fair Housing Act. Discuss it with your real estate agent and weigh the pros and cons carefully before writing an offer letter.

Also, consider other options that might help improve your chances of becoming a homeowner. For instance, you may decide that offering a higher price on the house, getting preapproved for a mortgage, or being flexible about the closing date is a better way to go.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How do you write a strong offer on a house?

In addition to making a strong offer on a house, you can write an offer letter. To write a strong offer letter, focus on the property. Tell the seller why you love the home, and thank them for considering your offer. Use a friendly tone, be genuine and sincere, and keep the letter to one page or less.

How to write an offer letter for a house for sale by owner?

In a house that’s for sale by owner, you’re likely dealing directly with the seller. In that case, you can address the seller by name in the letter and tell them why you like the house. Also, if you know there’s something they’re looking for, like a quick transaction, you could indicate that you’re flexible with the closing date. And if you’re preapproved for a mortgage, you could mention that as well.

How do you write a good offer letter?

Be succinct, genuine, and sincere in your offer letter. Focus on the house and why you like it, and avoid giving personal details. Thank the owner for considering your offer.

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Photo credit: iStock/Gorica Poturak

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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MAGI, or modified adjusted gross income, is your adjusted gross income, plus certain deductions added back in. Adjusted gross income, or AGI, is your total income, minus any deductions you’re eligible to claim.

Knowing how to calculate MAGI can help you determine which tax deductions or credits you may be eligible for when it’s time to file your return. Here’s a breakdown of what MAGI is, and why it matters.

What Is MAGI?

MAGI is a tax term that refers to modified adjusted gross income. Gross income is your income before taxes or other deductions are applied. Understanding your MAGI can be helpful for tax planning, whether you’re making money trading stocks, or simply working a single job and earning a paycheck.

Definition of MAGI

In simple terms, MAGI is your adjusted gross income with some deductions added back in to see if you qualify for specific deductions or income-based programs.

Some groups may define MAGI slightly differently depending on how it’s used. For instance, in context of student loan interest deductions, the Internal Revenue Service (IRS) notes the following:

For most taxpayers, MAGI is the adjusted gross income (AGI) as calculated on their federal income tax return before subtracting any deduction for student loan interest.

The Social Security Administration (SSA), meanwhile, uses this definition:

Modified Adjusted Gross Income (MAGI) is the sum of the beneficiary’s adjusted gross income (AGI) (found on line 11 of the Internal Revenue Service (IRS) tax filing form 1040), plus tax-exempt interest income (line 2a of IRS Form 1040).

You may wonder why you’re subtracting certain deductions and then adding them back in, but the totals of your MAGI and AGI may differ. We’ll compare MAGI and AGI a little further on to help you understand the difference.

Recommended: What Is Income Tax?

Why MAGI Is Important

MAGI becomes important when determining which, if any, tax breaks you may be eligible to claim. It’s helpful to know your MAGI if you plan to:

•   Make traditional IRA contributions that you plan to deduct on your taxes.

•   Claim a premium tax credit for health insurance expenses.

•   Claim child tax credits or education credits, which reduce your tax liability dollar for dollar.

It can also be helpful if you plan to contribute to a Roth IRA, which requires you to be income-eligible. An IRA is a tax-advantaged account that you can use to save for retirement. Traditional IRAs allow for deductible contributions while Roth IRAs offer tax-free qualified withdrawals.

Apart from tax planning, your MAGI is used for Medicare planning to determine what you’ll pay for monthly premiums once you turn 65.

MAGI vs. Adjusted Gross Income (AGI)

MAGI and AGI are two different calculations, though the final numbers may be very close. Here’s how the IRS defines AGI:

Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or “adjustments” to income that you are eligible to take.

Gross income, for AGI purposes, includes wages, dividends, capital gains, business and retirement income, tips, rents, and interest. Adjustments to income are deductions that reduce your gross income.

Some common deductions that reduce gross income to determine AGI include:

•   Health insurance premiums (if self-employed)

•   One half of self-employment taxes paid

•   Student loan interest

•   Educator expenses

•   Traditional IRA contributions and other qualified retirement plans

Your MAGI is your AGI, with some deductions added back in. Certain deductions are subject to limits, meaning that if your MAGI is too high, your deduction may be reduced or phased out entirely.

Who Needs to Calculate MAGI

Anyone who’s interested in claiming every tax credit or deduction they’re eligible for, up to the full amount allowed by the IRS, may benefit from knowing how to calculate MAGI.

Estimating your tax liability before the year ends gives you time to make some last-minute financial moves that might reduce what you owe or increase your refund. For instance, say you’ve been thinking of opening a Roth IRA. You’ll first need to know your MAGI to know if you’re eligible to contribute to a Roth, based on your income.

It’s also helpful to know your MAGI when applying for federal benefit programs. Your MAGI can affect your eligibility for:

•   Supplemental Nutrition Assistance Program (SNAP) benefits

•   Medicaid

•   Children’s Health Insurance Program (CHIP) benefits

How to Calculate MAGI

Tax planning software programs can calculate your MAGI automatically, or you consult with a tax professional. You’ll need a few pieces of information to find your MAGI.

Step 1: Calculate Your Adjusted Gross Income (AGI)

You’ll first need to find your AGI. To do that you first add up your total gross income. Again, this is all of your income from all sources, before taxes and deductions. Everyone’s list may be different, but might include:

•   Full or part-time employment wages

•   Self-employment income

•   Investments, including rental income

•   Interest and dividends

•   Capital gains

You’ll use your gross income number to find your AGI in the next step.

Step 2: Add or Subtract Applicable Adjustments

Now you’ll subtract applicable adjustments to gross income to find your AGI. Again, this will differ from individual to individual, but some of the most common adjustments for AGI include:

•   Traditional IRA contributions, including SEP IRA contributions if you’re self-employed

•   Student loan interest

•   Half of self-employment taxes paid

•   Tuition and fees

•   Contributions to a Health Savings Account (HSA)

The final number, after adjustments, is your AGI.

Step 3: Determine Your MAGI

Using your AGI you’ll now add back applicable adjustments to get your MAGI. Some of the things you’ll add back include:

•   Traditional IRA contributions, and SEP IRA contributions if you’re self-employed

•   Student loan interest

•   Half of self-employment taxes paid

•   Tuition and fees

•   Passive loss or passive income

•   Rental losses

•   Non-taxable Social Security payments

•   Foreign earned income exclusion

The resulting number is your MAGI, and this is what will help you discern which deductions or credits you might be eligible to take when filing your tax return.

Common Adjustments to AGI for MAGI Calculation

Some adjustments to AGI for MAGI calculations are more common than others. Here are some of the most-often used adjustments.

Tax-Exempt Interest Income

Tax-exempt interest income is not subject to tax at the federal level — as the name implies. This income may, however, still be subject to income tax at the state and local levels.

An example of tax-exempt interest income is income earned from municipal bonds. A municipal bond is a debt instrument that city and local governments use to raise money to fund public works.

When you buy a municipal bond or muni, the bond issuer agrees to pay you interest for a set term in exchange for the use of your money. If the bond is tax-exempt you won’t owe income tax on the interest earned.

But again, interest income from these bonds may still generate state or local tax liabilities.

Qualified Tuition Expenses

Qualified tuition expenses include tuition and required fees for enrollment or attendance at eligible postsecondary schools. The term “qualified tuition expenses” is most often used when discussing education tax credits, such as the American Opportunity Tax Credit (AOTC).

Qualified tuition expenses do not include:

•   Room and board

•   Transportation costs

•   Insurance and medical expenses

•   Student fees that are not required as a condition of enrollment or attendance

You can’t claim this credit for the same expenses that were paid for with tax-free scholarships or grants. Neither can you claim a deduction for the same education expenses that you claim a tax credit for.

IRA Contributions

Traditional IRAs allow you to deduct some or all of your contributions. The amount you can deduct is determined by three things:

•   Your MAGI

•   Your tax filing status

•   Whether you (and your spouse, if married) are covered by a retirement plan at your job

Note: If you or your spouse (if you’re married) are not covered by a retirement plan at work, your IRA contributions are fully deductible.

If either you or your spouse are covered by a workplace retirement plan, your IRA deduction may be limited. To determine how much of your IRA contributions you can deduct in a given year, if any, you’ll need to calculate your MAGI by adding certain deductions back to your AGI — such as the IRA contributions you deducted.

Deducting SEP or SIMPLE IRA Contributions

Keep in mind that contributions to self-employed retirement plans, such as SEP or SIMPLE IRAs, are generally subject to the same tax treatment as traditional IRAs. But because these accounts are used by small business owners and those who are self-employed, the rules governing deductions can be different from traditional IRAs, so it’s wise to check.

Roth IRAs do not allow for deductible contributions.

Student Loan Interest Deduction

When are student loans tax deductible? Generally speaking, the loan principal is not deductible, though the interest you pay might be.

The student loan interest deduction allows you to subtract amounts paid for student loan interest from your taxable income. For 2024 and 2025, you can deduct the lesser of $2,500 or the amount of interest you paid during the year.

Your MAGI must be below a certain amount to claim this deduction. For 2024, your ability to claim the deduction begins to phase out at these levels:

•   Single filers with a MAGI of $80,000 or more

•   Married couples filing jointly with a MAGI of $165,000

Single filers with a MAGI exceeding $95,000 and married couples with a MAGI greater than $195,000 won’t be able to deduct student loan interest.

For 2025, your ability to claim the deduction begins to phase out at these levels:

•   Single filers with a MAGI of $90,000 or more

•   Married couples filing jointly with a MAGI of $185,000

MAGI and Tax Credits

Tax credits reduce your tax liability dollar for dollar. Some tax credits are refundable, meaning you can get a credit for them even if you don’t owe any tax.

MAGI is used to determine eligibility for a number of tax credits, including:

•   Child Tax Credit

•   Earned Income Tax Credit (EITC)

•   Premium tax credit for health insurance

•   Dependent Care Credit

Claiming credits can reduce your tax liability at the end of the year.

MAGI and Deductions

Tax deductions reduce your taxable income, which can push you into a lower tax bracket. As mentioned above, MAGI is used for several key deductions, including:

•   IRA contributions

•   Student loan interest

•   Educator expenses

•   Deductions for adoption expenses

You can claim both tax credits and deductions on your return to try and minimize your tax liability, or boost your refund. However, you can’t claim tax credits and deductions for the same expenses.

The Takeaway

MAGI is the same as AGI plus some adjustments added back into the mix. Navigating tax terms can seem daunting but it’s helpful to understand what MAGI is and how it can impact your financial situation. Learning about how taxes work can help you develop a plan for potentially minimizing your tax liabilities, so that you might have more money to invest.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What is the difference between MAGI and AGI?

Your MAGI is your adjusted gross income, with certain adjustments added back in. Your AGI is your gross income, after certain deductions are taken out.

Is MAGI used for all tax calculations?

MAGI is used for certain tax calculations that determine eligibility for tax breaks. For example, if you’re wondering whether you can claim the Earned Income Tax Credit, or get a deduction for traditional IRA contributions, your MAGI makes a difference.

Can MAGI be higher or lower than AGI?

Your MAGI will always be equal to your AGI, or higher. MAGI is your AGI, with certain deductions or adjustments added back in.

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