Question

Judy, a single individual, reports the following items of income and loss:

Salary $120,000
Loss from Rental Property ($40,000)

Judy owns 100 percent of the rental property and actively participates in the rental of the property. Calculate Judy's taxable income for 2020.

Answer 1

SOLUTION

The maximum allowance on the loss from rental property is $25,000 so judy is allowed to have a deduction of upto $25,000.

However,the amount of the gross income above $100,000 is allow to have 50% deduction from the loss beared from the rental property.

Calculating deduction allowed from rental property = $25,000 - (excess of income over 100,000*50%)

= $25,000 - ($20,000*50%)

= $25000 - $10,000

= $15,000

Now, judy's taxable income = salary - deduction allowed from the loss of rental property

Judy's taxable income = $120,000 - $15,000

Judy's taxable income for 2020 = $105,000