When a taxpayer experiences a net loss from a nonresidence (rental property):
A) The taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources.
B) The loss is fully deductible against the taxpayer's ordinary income no matter the circumstances.
C) If the taxpayer is not an active participant in the rental, the taxpayer can deduct the loss even if the taxpayer does not have any sources of passive income.
D) If the taxpayer is not allowed to deduct the loss due to the passive activity limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

Question

Quizplus · Accepted Answer

If the taxpayer experiences a net loss from a nonresidence (rental property) and is not allowed to deduct the loss due to the passive activity limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property. Option A is incorrect because there is a possibility of deducting the loss if there are passive income sources. Option B is incorrect because the loss cannot fully offset the ordinary income under any circumstances. Option C is incorrect because if the taxpayer is not an active participant in the rental, the loss may be limited or disallowed depending on the taxpayer's income level.

When a Taxpayer Experiences a Net Loss from a Nonresidence