Question

Ivan and Olga own a duplex. They collect the rents and make repairs to the property when necessary. That is, they are active participants in the rental property. During the current year, the duplex has gross rents of $16,000 and total allowable deductions of $31,000.What is the effect of the duplex rental on their taxable income if their AGI is
a) $87000? b)$122000? c) $155000? d)$139000?

Answer 1

Answer:

A. $155,000

Explanation:

The $25,000 rental real estate deduction is reduced when an individual's adjusted gross income exceeds $100,000. The amount of the reduction is $.50 for every $1 of adjusted gross income in excess of $100,000. Thus, the special rental real estate deduction is not available to taxpayer's whose adjusted gross income exceeds $150,000. Because Ivan and Olga have $155,000 of adjusted gross income, they are not allowed to deduct any of the $15,000 rental loss. The $15,000 loss is suspended as a passive loss and can be deducted in the following year against either passive income or under next year's $25,000 limit.