S owns a duplex, which she rents out on a long-term basis.Although she is actively involved in managing the property, no significant services are provided.During the year, S earned a salary of $70,000 and had interest income of $10,000.Assuming the rental activity generates a $20,000 loss, all of the loss may be used by S to reduce her salary and interest income.

Question

Quizplus · Accepted Answer

According to the passive activity rules, taxpayers can use losses from rental real estate activities to offset income from other sources if they actively participate in the management of the property and have adjusted gross income (AGI) of $150,000 or less (subject to phased-out limitations). Since S actively manages the property and has AGI within the limit, she can use the $20,000 loss to reduce her salary and interest income.

S Owns a Duplex, Which She Rents Out on a Long-Term