Arnold purchased two rental properties 6 years ago. He actively participates in their management. During 2014, Arnold had income of $22,000 from one of the rentals. He had a loss from the other rental of $32,000, as well as salary income of $35,000, and dividend income of $2,000. What is Arnold's net passive income or loss deduction?

Question

Quizplus · Accepted Answer

Arnold's rental income and loss are passive activities, and since he actively participates in their management, his losses can be deducted up to $25,000, subject to income limitations. Since Arnold's salary income is $35,000 and his dividend income is $2,000, his allowable passive activity loss is reduced to $10,000 ($25,000 - ($35,000 + $2,000)). Therefore, Arnold has a net passive activity loss of $10,000.

Arnold Purchased Two Rental Properties 6 Years Ago