Question

An individual taxpayer reports the following items for 2018:

Ordinary income from Partnership A, operating a movie theater in which the taxpayer materially participates - $70,000

Net rental loss from residential property in which the taxpayer actively participates - ($40,000)

a) What is the amount of deductible rental loss from residential property, taxpayer's adjusted gross income for 2018 and the amount of passive loss carryover to 2019?

b) How would your answer in part A change if ordinary income from partnership A was $120,000 instead of $70,000?

Answer 1

Passive activity rule

It can be deucted $ 25000 passive loss against ordinary income (W-2 wage) if modifed adjusted income is of $ 100000 or less

So Answers a) Ordinary Income = $ 70000

Deduction = $ 25000

-----------

Income $ 45000

=========

The remaining $ 15000 will be carry forward to next year 2019

b) If Ordinary Income $ 120000 deduction can be each doller over $ 100000 rduced the amount and we could deuduct bu $0 .50

Ordinaray Income $ 120000-$100000 = $ 20000*$0.5 = $10000

  

Ordinary Income = $ 120000

Deduction = $ 10000

-----------

Income $ 110000

=========