[Rivens]

Can you help me out here? I feel like there’s no way the answer is what it is:

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Q

Smith (single filing status) has an adjusted gross income (AGI) of $120,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of the rental losses may Smith deduct in determining taxable income?

A

Individuals may offset up to $25,000 ($50,000 if married filing jointly) of ordinary income with losses from rental real estate activities. This exemption is reduced (but not below zero) by 50% of the amount by which the adjusted gross income of the taxpayer for the year exceeds $100,000.

Therefore, $25,000 – (($120,000 – $100,000) × 0.50) = $15,000 deduction allowed.

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This makes no sense to me — rental activities, even if materially/actively participated are considered passive activity. Thus a 40k loss is a passive loss, only to offset passive income and carryforward (indefinitely I think). Am I missing something here???

Brah u srs
FAR - 85
BEC - 77
AUD - 71 -> 61 -> 71 -> 67
REG - 75