Mark has an adjusted gross income of $154,000. Not included in his adjusted gross income is a $16,000 loss from a passive activity. Which of the following statements regarding the effect of the passive loss on his adjusted gross income is/are correct?
I.If the activity does not involve rental real estate, he can only deduct the loss as a miscellaneous itemized deduction.
II.If the activity is rental real estate and Mark is an active participant, he can deduct the $16,000 loss for adjusted gross income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Mark has an adjusted gross income of $154,000. Not included in his adjusted gross income is a $16,000 loss from a passive activity. Which of the following statements regarding the effect of the passive loss on his adjusted gross income is/are correct?
I.If the activity does not involve rental real estate, he can only deduct the loss as a miscellaneous itemized deduction.
II.If the activity is rental real estate and Mark is an active participant, he can deduct the $16,000 loss for adjusted gross income.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Explanation: Statement I is incorrect because passive activity losses are generally not deductible as miscellaneous itemized deductions. They are subject to passive activity loss rules, which often limit the ability to deduct these losses against other types of income. Statement II is incorrect because, for rental real estate activities in which the taxpayer actively participates, there is a special allowance for losses, but it phases out for taxpayers with modified adjusted gross incomes between $100,000 and $150,000. Since Mark's adjusted gross income is $154,000, he would not be able to deduct the $16,000 loss for adjusted gross income due to the phase-out rules.

Mark Has an Adjusted Gross Income of $154,000