  The electronic structure of Fe impurity in MgO was calculated by the linear
muffin-tin orbital--full-potential method within the conventional local-density
approximation (LDA) and making use of the LDA+$U$ formalism. The importance of
introducing different potentials, depending on the screened Coulomb integral
$U$, is emphasized for obtaining a physically reasonable ground state of the
Fe$^{2+}$ ion configuration. The symmetry lowering of the ion electrostatic
field leads to the observed Jahn--Teller effect; related ligand relaxation
confined to tetragonal symmetry has been optimized based on the full-potential
total energy results. The electronic structure of the Fe$^{3+}$ ion is also
calculated and compared with that of Fe$^{2+}$.
