Ilene rents her second home. During 2014, 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 2014?

Question

Quizplus · Accepted Answer

Since Ilene is an active participant in the rental, the maximum amount of rental loss she can deduct against ordinary income is $25,000. However, this amount is reduced by 50% of the amount by which her AGI exceeds $100,000. So, $140,000 - $100,000 = $40,000 excess AGI. 50% of $40,000 is $20,000, which is greater than the $15,000 net rental loss. Therefore, the rental loss is reduced by $15,000 - $5,000 (which is 50% of $40,000), resulting in a deductible rental loss of $10,000. Therefore, the correct answer is C) $5,000.

Ilene Rents Her Second Home