ExpertHard1 markMultiple Choice
CPA · Question 40 · Area IV: Individual Taxation
A taxpayer has a $10,000 loss from a rental real estate activity in which they actively participate. Their Modified AGI is $130,000. What is the allowable deduction under the 'Mom and Pop' exception?
A taxpayer has a $10,000 loss from a rental real estate activity in which they actively participate. Their Modified AGI is $130,000. What is the allowable deduction under the 'Mom and Pop' exception?
Answer options:
A.
$25,000
B.
$10,000
C.
$0
D.
$5,000
How to approach this question
1. Max Exception = $25,000. 2. Phase-out: ($130k - $100k) * 50% = $15,000 reduction. 3. New Limit = $25k - $15k = $10,000. 4. Actual Loss = $10,000. 5. Deductible = Lesser of Loss or Limit ($10,000).
Full Answer
B.$10,000✓ Correct
B
The $25,000 allowance is reduced by 50% of MAGI over $100,000. Excess = $30,000. Reduction = $15,000. Remaining allowance = $10,000. Since the loss is $10,000, it is fully deductible.
Common mistakes
Applying the reduction to the loss amount rather than the limit.
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