Carey, a single taxpayer, purchased a rental house in 2015, which he actively manages. During 2015, Carey had a loss of $14,000 from the rental house. If Carey's adjusted gross income for 2015 is $138,000 before the rental loss, what is the amount of Carey's allowable deduction for the rental activity for 2015?

Question

Quizplus · Accepted Answer

Because Carey actively manages the rental house, he can deduct up to $25,000 of the loss against his nonpassive income. However, the $25,000 allowance is phased out for taxpayers with adjusted gross income between $100,000 and $150,000 (in 2015). Carey's adjusted gross income of $138,000 is within that phase-out range. To calculate the allowable deduction, we first need to determine the amount by which Carey's adjusted gross income exceeds the top end of the range:

$138,000 - $150,000 = -$12,000

Because Carey's adjusted gross income is below the bottom end of the phase-out range, his allowable deduction is simply the full amount of his rental loss:

$14,000

So the correct answer is (C).

Carey, a Single Taxpayer, Purchased a Rental House in 2015