Does this make sense
Other taxpayers who qualify as active participants in a rental real estate activity may also deduct losses from such activities against active and portfolio income.
(a) Generally, up to $25,000 of losses from such activities may be deducted against active income and portfolio income ($12,500 for married taxpayers filing separately).
(b) This $25,000 deduction limit is reduced by 50% of the taxpayer's AGI in excess of $100,000.
(c) To qualify for the $25,000 deduction, the taxpayer must:
i. actively participate in the rental activity (e.g., be involved in decision making) and
ii. own at least 10% of the activity.
Then this question
Lane, a single taxpayer, received $160,000 in salary, $15,000 in income from an S corporation in which Lane does not materially participate, and a $35,000 passive loss from a 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
Correct B.
$15,000
C.
$25,000
D.
$35,000
Individuals may offset up to $25,000 ($50,000 if married filing jointly) of ordinary income with rental real estate activities. This deductible loss is reduced (but not below zero) by 50% of the amount by which the modified adjusted gross income of the taxpayer for the year exceeds $100,000.
First, the passive activities were netted $15,000 from the S corporation – $35,000 from the rental = $(20,000).
Second, the salary of $160,000 is decreased by the net $20,000 passive activity loss for a modified AGI before limitation of $140,000.
Third, the amount of $140,000 that exceeds $100,000 is multiplied by 50%, equaling $20,000.
Fourth, the rental loss of $35,000 is decreased by the $20,000 limitation, leaving an allowable deduction of $15,000.
why did they reduce the $35K with the 20K limitation shouldn't it have been only 25K?
FAR - 78*
AUD - 66, 79
REG - 73, 76
BEC - 79
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