Question 1

Taxpayer (AGI 30,000) actively participates in a rental real estate activity that produced a ,000 loss. They have no other passive income. How much of the loss can they deduct against ordinary income?

Accepted Answer

Mom & Pop Rule: Max 25k deduction. Phase-out starts at 100k AGI. Lose 50 cents for every dollar over 100k. At 130k AGI, you are 30k over. Lose 15k of the limit. Limit is now 10k.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Forgetting the phase-out or applying it to the loss amount rather than the maximum allowance.

Taxpayer (AGI 30,000) actively participates in a rental real estate activity that produced a ,000 loss. They have no other passive income. How much of the loss can they deduct against ordinary income?

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