Arnold purchased two rental properties 6 years ago. He actively participates in their management. During 2019, Arnold had income of $22,000 from one of the rentals. He had a loss from the other rental of $32,000, as well as salary income of $35,000, and dividend income of $2,000. What is Arnold's net passive income or loss deduction?

Question

Quizplus · Accepted Answer

Arnold's rental activities are passive activities, but since he actively participates in their management, he can claim up to $25,000 in losses as a special allowance against regular income. However, this allowance is phased out for taxpayers with AGI between $100,000 and $150,000.

Arnold's AGI is $35,000 + $2,000 = $37,000, which is below the phase-out range, so he can claim the full $25,000 allowance.

Therefore, his net loss deduction from the rental activities is $25,000 - $32,000 = -$7,000.

Adding the $22,000 rental income, Arnold's total passive income or loss is $22,000 - $7,000 = $15,000 net passive income.

However, since the question is asking for the net passive income or loss deduction, the answer is -$10,000 net loss (the negative of his net passive income).

Arnold Purchased Two Rental Properties 6 Years Ago