ExpertMedium1 markMultiple Choice
CPA · Question 10 · Area I: Individual Compliance and Planning
A taxpayer owns a rental real estate activity in which they actively participate. In Year 1, the activity generates a loss of $30,000. The taxpayer's Modified Adjusted Gross Income (MAGI) is $130,000. They have no other passive income. What amount of the rental loss is deductible in Year 1?
A taxpayer owns a rental real estate activity in which they actively participate. In Year 1, the activity generates a loss of $30,000. The taxpayer's Modified Adjusted Gross Income (MAGI) is $130,000. They have no other passive income. What amount of the rental loss is deductible in Year 1?
Answer options:
A.
$25,000
B.
$10,000
C.
$15,000
D.
$0
How to approach this question
Calculate phase-out for the $25k Mom & Pop exception. Reduction = (MAGI - 100,000) * 50%. Subtract reduction from $25,000.
Full Answer
B.$10,000✓ Correct
B
IRC §469(i). Active participation rental real estate allowance is $25,000. Phase-out: $0.50 for every $1 of MAGI over $100,000. <br/>MAGI = $130,000. Excess = $30,000. <br/>Reduction = $30,000 * 0.50 = $15,000. <br/>Allowable Loss = $25,000 - $15,000 = $10,000.
Common mistakes
Forgetting the phase-out or applying it incorrectly.
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