ExpertHard1 markMultiple Choice
CPA · Question 30 · Area IV: Individual Taxation
A single taxpayer has Adjusted Gross Income (AGI) of $140,000. They actively participate in a rental real estate activity that generated a $20,000 loss. How much of this loss is deductible in the current year?
A single taxpayer has Adjusted Gross Income (AGI) of $140,000. They actively participate in a rental real estate activity that generated a $20,000 loss. How much of this loss is deductible in the current year?
Answer options:
A.
$20,000
B.
$25,000
C.
$10,000
D.
$5,000
How to approach this question
Mom-and-Pop Exception: Up to $25k loss allowed if active. Phase-out starts at $100k AGI. $0.50 reduction for every $1 over $100k. Excess AGI = $40k. Reduction = $20k. Allowed = $25k - $20k = $5k.
Full Answer
D.$5,000✓ Correct
D
The $25,000 rental real estate exception phases out by 50% of AGI over $100,000. Excess AGI = $140,000 - $100,000 = $40,000. Reduction = $40,000 * 50% = $20,000. Max deduction = $25,000 - $20,000 = $5,000. Since the actual loss ($20,000) > limit ($5,000), only $5,000 is deductible.
Common mistakes
Forgetting the phase-out range ($100k-$150k) or applying the reduction to the actual loss instead of the $25k limit.
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