Question

Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a lmited partnership that operates out of her home state, and a $26,000 passive loss from a rental estate activity in which she actively participates. Her modified AGI is $155,000. Of the $26,000 loss, how much is deductible?

Answer 1

According to laws and rules with respect to rental estate activities:-

1) Losses from rental estate activities are generally considered as a passive losses and can only offset passive income. A person who actively participates in real estate activity may be able to deduct upto $25,000 against non passive income.

2) If your modified adjusted gross income exceed $1,00,000, the $25000 maximum amount is reduced to 50% of each dollar over $1,00,000.

Answer) A rental loss of $10,000 is deducted against the passive income from the limited partnership interest.None of the remaining $16,000 rental loss is deducted against josie's salary, even though she actively participates in the activity. The special $25000 offset for real estate rental activities is reduced to $0 [$25000 - 50% ($155,000 - $1,00,000)]. Therefore, of the remaining $16,000 losss, none can be deducted in the current year.