Question 1

A taxpayer has $50,000 of salary income and a $10,000 loss from a rental real estate activity in which they actively participate. Their Modified Adjusted Gross Income (MAGI) is $130,000. How much of the rental loss is deductible in the current year?

Accepted Answer

1. Max Allowance = $25k. 2. Reduce by 50% of MAGI over $100k. ($130k - $100k) * 0.5 = $15k reduction. 3. Available Allowance = $10k. 4. Compare to Loss ($10k). Deductible = $10k.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Calculating the reduction but not applying it to the $25k limit, or assuming the loss is disallowed because income > $100k.

A taxpayer has $50,000 of salary income and a $10,000 loss from a rental real estate activity in which they actively participate. Their Modified Adjusted Gross Income (MAGI) is $130,000. How much of the rental loss is deductible in the current year?

How to approach this question

Full Answer

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