Question

Michelle is an active participant in the rental condominium property she owns. During the year, the property generates a ($15,000) loss; however, Michelle has a sufficient tax basis and at-risk amounts to absorb the loss. If Michelle has $115,000 of salary, $10,000 of long-term capital gains, $3,000 of dividends, and no additional sources of income or deductions, how much loss can Michelle deduct?

Answer 1

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Answer is highlighted in yellow: Solution: $11,000 Answer: Explanation: Passive loss is initially deducted from a passive income from other source. In this case, There is no other passive income to offset. The remaining amount can be offset per below rule. Rental house activity is a passive activity. Since, there is an active participation, therefore, following rule and deduction will be allowed: $15,000 Actual passive loss Passive loss can be offset against other Passive income. a) b) If Passive Income is not sufficent than Lower of Remainning Passive loss or Following: Maximum allowance allowed before phaseout as per IRS $25,000 $14,000 [(115000+10000+3000) - ( 100000) ] *50% Phaseout Starts from MAGI $100000 Allowable loss deduction against ordinary income for the year $11,000