ExpertMedium1 markMultiple Choice
CPA · Question 31 · Area I: Individual Compliance and Planning
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?
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?
Answer options:
A.
$25,000
B.
$10,000
C.
$5,000
D.
$0
How to approach this question
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.
Full Answer
B.$10,000✓ Correct
IRC §469(i). The $25,000 allowance for active participation rental real estate is phased out by 50% of MAGI over $100,000. Reduction = ($130,000 - $100,000) * 0.5 = $15,000. Remaining Allowance = $25,000 - $15,000 = $10,000. Since the loss is $10,000, it is fully deductible.
Common mistakes
Calculating the reduction but not applying it to the $25k limit, or assuming the loss is disallowed because income > $100k.
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