Michelle is an active participant in the rental condominium property she owns. During the year, the property generates a ($17,000)loss; however, Michelle has sufficient tax basis and at-risk amounts to absorb the loss. If Michelle has $119,000 of salary, $10,400 of long-term capital gains, $3,400 of dividends, and no additional sources of income or deductions, how much loss can Michelle deduct?

Question

Quizplus · Accepted Answer

Michelle can deduct up to $25,000 of rental real estate losses against non-passive income if she actively participates and her AGI is below $100,000. Her AGI is $132,800 ($119,000 salary + $10,400 capital gains + $3,400 dividends), which is above $100,000. The deduction is phased out by 50% of the amount over $100,000. The phase-out is $16,400 (50% of $32,800), reducing the $25,000 allowance to $8,600.

Michelle Is an Active Participant in the Rental Condominium Property