8K Credit -> 403b/401k to reduce MAGI - 65% tax break?

[kags1969]

I have a gross income of ~81K and I am looking for a house.  The question I have is if I put 6K in my 403b will this reduce my Modified Adjusted Gross Income down to 75K so that I am able to get the full credit? 

Because the 8K credit is phased out over 20K there is like a 40% return on credit for any reduction from 95k down to 75K, plus a 25% income tax reduction.   This means that for every $1 I put in my 403b (down to 75K) the govt is giving me a .65 tax break.

Is this correct?  Does a 403b/401k reduce MAGI?

 Thanks,

Kags

[rivernh]

I would love to know the answer to this too...so I'll give you a bump!

[Anonymous]

Gross income (from what I understand) is still gross income.  the total amount of money paid to you.  How you choose to invest or account for it doesn't matter from what I understand.  You may not pay taxes on the investment, but you were still being paid the money.  This is obviously different for self employed/etc as then they go by w-2's instead of a paycheck, but if you are a regular paycheck employee it should go by the gross pay (pre tax and exemptions) that your employer owes you. 

[kags1969]

Well I looked at the instructions associated with the 7500 tax credit and it looks like to get the MAGI amount you take line 38 from the tax return and then add back foreign income.  This means that 401k/403b and IRA's as well as Health Savings Accounts effect the number.  

[WannaHouse]

Sounds more like a tax question than a mortgage question. I would call a professional.