Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive activity loss from a real estate rental activity in which she actively participates.If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

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Quizplus · Accepted Answer

The IRS allows taxpayers to deduct up to $25,000 of passive activity loss if they actively participate in the real estate rental activity and their modified adjusted gross income (MAGI) is $100,000 or less. The deduction phases out by $0.50 for every dollar of MAGI over $100,000, and completely phases out at $150,000. Since Josie's MAGI is $155,000, she is $5,000 over the phase-out limit, which means she cannot deduct any of the $26,000 passive activity loss. However, because she has $10,000 in income from a limited partnership (which can be considered passive income), she can use up to that amount to offset the passive loss. Therefore, she can deduct $10,000 of the $26,000 loss.

Josie, an Unmarried Taxpayer, Has $155,000 in Salary, $10,000 in Income