ExpertHard1 markMultiple Choice
CPA · Question 28 · Area IV: Individual Taxation
A taxpayer has a $20,000 loss from a rental real estate activity in which they actively participate. The taxpayer's Modified Adjusted Gross Income (MAGI) is $130,000. How much of the loss can be deducted against ordinary income in the current year?
A taxpayer has a $20,000 loss from a rental real estate activity in which they actively participate. The taxpayer's Modified Adjusted Gross Income (MAGI) is $130,000. How much of the loss can be deducted against ordinary income in the current year?
Answer options:
A.
$20,000
B.
$10,000
C.
$0
D.
$5,000
How to approach this question
Mom & Pop Exception: $25,000 max deduction. Phase-out range $100k-$150k. Reduction = (MAGI - 100k) * 50%.
Full Answer
B.$10,000✓ Correct
B
Taxpayers who actively participate in rental real estate can deduct up to $25,000 of losses against non-passive income. This allowance is reduced by 50% of the amount by which MAGI exceeds $100,000. Excess = $30,000. Reduction = $15,000. Allowable deduction = $10,000.
Common mistakes
Forgetting the phase-out or applying it to the loss amount rather than the $25k limit.
Practice the full CPA REG Practice Exam 5
72 questions · hints · full answers · grading
More questions from this exam
Q01A CPA is representing a client, TechSolutions Inc., in an IRS examination regarding a large resea...HardQ02A tax return preparer is engaged to prepare a return for a client who has engaged in a transactio...HardQ03Which of the following statements accurately describes the disciplinary authority of a State Boar...HardQ04A taxpayer filed their Year 1 individual income tax return on March 15, Year 2. The return showed...HardQ05A taxpayer disagrees with a proposed IRS deficiency and wishes to litigate the matter. The taxpay...Hard