Natalie is the owner of an apartment complex. She actively participates in the management of the building. During the current year, it generates a taxable loss of $33,000. Natalie's other sources of income are salary of $114,000 and interest of $16,000. What is Natalie's allowable loss from the apartment in the current year?

Question

Quizplus · Accepted Answer

The IRS allows up to $25,000 of rental real estate loss to be deducted against other income, such as wages and salaries, for individuals actively participating in the property management. However, this allowance begins to phase out for taxpayers with a modified adjusted gross income (MAGI) over $100,000 and is completely phased out at $150,000. Since Natalie's income (salary of $114,000 + interest of $16,000 = $130,000) exceeds $100,000, her allowable loss is reduced. The phase-out is $0.50 for each dollar over $100,000. Therefore, her reduction is ($130,000 - $100,000) * $0.50 = $15,000. The maximum loss of $25,000 is reduced by $15,000, leaving her with an allowable loss of $10,000.

Natalie Is the Owner of an Apartment Complex