Question

Kathy and Steve actively manage a small medical office building that they purchased in 2010. They have losses of $60,000 from the building in 2015. Their other income is as follows:

     Salaries                            $110,000

     Dividends and Interest       $22,000

How much of the loss from the rental activity can be used to reduce their 2015 taxable income?

		$13,000
		$4,500
		$25,000
		$9,000

Answer 1

Generally Loss from Rentals is treated as Passive and Passive losses should be set off against Passive Income i.e Other than the Income from salary,Investment.

However there is exception to the set off of Passive Loss

There are only two exceptions to the passive loss ("PAL") rules:

• you or your spouse qualify as a real estate professional, or
• your income is small enough that you can use the $25,000 annual rental loss allowance.

Property owners with modified adjusted gross incomes of $100,000 or less may deduct up to $25,000 in rental real estate losses per year if they "actively participate" in the rental activity. You actively participate if you are involved in meaningful management decisions regarding the rental property and have more than a 10% ownership interest in the property.

Therefore $25,000 Loss from rental Activity shall be settoff as exception to Passive Loss