ExpertHard1 markMultiple Choice
CPA · Question 28 · Area IV: Individual Taxation
A taxpayer had the following income in the current year: Salary $50,000; Partnership Income (active) $10,000; Interest Income $2,000. The taxpayer also had a $5,000 loss from a rental real estate activity in which they actively participated (AGI is well below phase-out limits). What is the taxpayer's Adjusted Gross Income (AGI)?
A taxpayer had the following income in the current year: Salary $50,000; Partnership Income (active) $10,000; Interest Income $2,000. The taxpayer also had a $5,000 loss from a rental real estate activity in which they actively participated (AGI is well below phase-out limits). What is the taxpayer's Adjusted Gross Income (AGI)?
Answer options:
A.
$62,000
B.
$50,000
C.
$57,000
D.
$60,000
How to approach this question
Sum income sources. Check if rental loss is deductible (Active participation + Low AGI = Yes, up to $25k).
Full Answer
C.$57,000✓ Correct
Total Income = Salary $50,000 + Partnership $10,000 + Interest $2,000 = $62,000. The rental real estate loss is passive, but the taxpayer qualifies for the 'Mom and Pop' exception (active participation, AGI < $100k). Therefore, the $5,000 loss is fully deductible. AGI = $62,000 - $5,000 = $57,000.
Common mistakes
Disallowing the rental loss (forgetting the exception) or adding it.
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