Ilene rents her second home for the entire year.During the year,Ilene reported a net loss of $15,000 from the rental.If Ilene is an active participant in the rental and her AGI is $140,000,how much of the loss can she deduct against ordinary income in the year?

Question

Quizplus · Accepted Answer

If Ilene is an active participant in the rental, she can deduct up to $25,000 of rental losses against her ordinary income. However, this deduction is reduced by $1 for every $2 that her AGI exceeds $100,000. In this case, Ilene's AGI exceeds $150,000 ($140,000 + $10,000 for the rental loss), which is $50,000 over the $100,000 threshold. So her deduction is reduced by $25,000 / 2 = $12,500. Therefore, she can deduct $25,000 - $12,500 = $12,500 of her rental loss against ordinary income. However, the rental loss is only $15,000, so she can only deduct up to the amount of the loss, which is $15,000. Therefore, the answer is C) $5,000.

Ilene Rents Her Second Home for the Entire Year