[yomomma]

I’m not quite sure why the answer is B. Is the $35,000 not subject to $25,000 deduction because Lane isn’t a real estate professional even if he/she materially participated in the real estate rental activity? And also, is the answer B because the $15,000 income from S corp which was not materially participated could be offset with the $35,000 passive loss?

#14 of 2010 Bisk released questions

Lane, a single taxpayer, received $160,000 in salary, $15,000 in income from an S Corp. in which Lane does NOT materially participate, and a $35,000 passive loss from real estate rental activity in which Lane materially participated. Lane’s modified adjusted gross income was $165,000. What amount of the real estate rental activity loss was deductible?

A. $0

B. $15,000

C. $25,000

D. $35,000

Answer : B

FAR - 79
AUD - 82
REG - 83
BEC - 77 Booya

[MBA MST CPA]

He can't take the $25,000 because that is completely phased out at $150,000 agi and his agi is $165,000. I think that the answer is B because he is offsetting the $15,000 passive income.

REG - 11/5/2012 - 80
BEC - 1/17/2013 - 76
AUD - 2/22/2013 - 70 4/5/2013 - 75
FAR - 5/28/2013 - 75 - Done!!!

Question: What do you call someone who only gets 75's and 76's on the four parts of the CPA exam?

Answer: A CPA

[MrsBing]

I'm confused, It says how much of the passive loss can be deducted. The s-corp is a gain and the real estate is phased-out, so wouldn't there be no loss deductible?

Becker, Wiley Test Bank, and Ninja 10 Point Combo!

FAR: 89
REG: 87
AUD: 92
BEC: 75
Ethics: 90

Licensed Arizona CPA

[MBA MST CPA]

Normally you can deduct passive losses to the extent of passive income. An exception is that taxpayers with agi's under $100,000 can deduct up to $25,000 in losses from real estate activities that exceed their net passive income. (Unless you are a real estate professional, income and losses from real estate activitirs are passive) This deduction phases out on agi's between $100,000 and $150,000.

Since the person is evidently not a real estate pro and his agi is over $150,000, his deduction of passive losses is limited to his passive income.

REG - 11/5/2012 - 80
BEC - 1/17/2013 - 76
AUD - 2/22/2013 - 70 4/5/2013 - 75
FAR - 5/28/2013 - 75 - Done!!!

Question: What do you call someone who only gets 75's and 76's on the four parts of the CPA exam?

Answer: A CPA

[MrsBing]

I get it now. Thanks

Becker, Wiley Test Bank, and Ninja 10 Point Combo!

FAR: 89
REG: 87
AUD: 92
BEC: 75
Ethics: 90

Licensed Arizona CPA

[lbi18]

I just wanted to clarify something on this topic. I have utterly confused myself on this topic and I think it is because I have been studying so much.

But, let's say that the AGI was below $100,000. Would this taxpayer (and thus the answer) be able to deduct $25,000 of the rental real estate loss with $10,000 suspended to subsequent years?

I know this is so simple, I just have confused myself to the point of extreme frustration.

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[barelystayingsane]

If that were the case, he could deduct $25,000 for the exception, but then the remaining $10,000 could offset the passive S corp income, so he would not have anything carried over to the future year. Everything would be deducted in the current year.

[lbi18]

Got it. And if instead of S Corp income, it was dividend income, then the $10,000 would be carried forward, correct?

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[mctaxes]

That is correct. Since there is no longer an AGI restriction, the taxpayer can now claim the $25K.

Since dividends are not considered passive you would not be able to offset the remaining amount against that income.

[lbi18]

So you can pretty much net all passive income with all passive expenses then, am I right?

I just have another question I was hoping could be answered as well. Let's say that an S Corp shareholder has $5,000 of ordinary pass-through income on his K-1. Now, let's say his Section 179 deduction that flows through to him from that S Corp is $7,000.

This would mean he has a net passive loss of $2,000 then, correct?

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[mctaxes]

Just to be clear, in your example the taxpayer is not actively participating as you mention net passive loss. If so, I believe section 179 is suppose to be used by those who materially participate only, therefore, there is a tax provision that does not allow a passive investor to offset income by using sec. 179 from the same passive activity the taxable income was derived from. In order for you to be able to use that section 179, you will need to have income from sources in which you materially participated. Therefore, in your example, the taxpayer would have passive income of $5k, but the use of the $7k (sec 179) will be dependent upon whether or not they have enough income from which they materially participated to absorb it.

[mctaxes]

I just looked it up, reg 1.179-2(c)(6)(ii). I should have used actively participated as oppose to materially participated.

[Anonymous]

usually passive activity loss recognized on the return is to the extent of passive activity income; but some taxpayer may actively participate in rental activities (no long a passive). a benefit is given to these tps that they can deduct up to 25000 rental loss if their agi is between 100000-150000.

usually we know tax rules have general rules and exception, the 25000 deductible is the exception; so if the exception doesn't apply, we continue the general rule, which in this case is just 15000 passive activity loss deduction.

[barelystayingsane]

@cycgundam if you read through the thread, you'll notice that this was already answered about two weeks ago 🙂

[Author]

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