Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk amount limitation, she may deduct $25,000 of the loss this year, and the remaining $25,000 is a suspended passive activity loss.

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Lucy actively participates in the rental activity, so the $25,000 special allowance for rental real estate losses applies. However, her modified AGI exceeds $100,000, reducing the allowance by 50% of the excess, resulting in a reduced deductible loss.

Lucy Owns and Actively Participates in the Operations of an Apartment