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statuscvo [17]
2 years ago
13

Barry is a lawyer. He owns 10 apartment buildings that are managed by his brother’s real estate business. At the end of the year

, the apartment buildings resulted in a $40,000 loss. Barry earned $80,000 in wages. His wife, Claire, earned $20,000 from her part-time job. Their other income included $5,000 in dividends from their mutual funds. They had no other income. How much of the rental loss can Barry use assuming Barry actively participates in the apartment buildings?
Business
1 answer:
Liono4ka [1.6K]2 years ago
3 0

Answer:

<u>$22,500</u>

Explanation:

Note, the applicable tax law in this case states permits an individual who engages in a rental real estate to use up to $25,000 of net losses from the rental real estate activity to offset other their other income.

Since a rental activity is classified as a passive activity, whether or not the taxpayer participates in such activity, the $25,000 rental loss is reduced by 50% of the amount in the case where  Annual Gross Income (AGI) exceeds $100,000. Consequently, since Barry's AGI is  $105,000 ($80,000 + $20,000 + $5,000), which is greater than $100,000, only the amount exceed $100,000 would be reduced by 50%, which is calculated below:

<u>$105,000 – $100,000 × 50% = $2,500, next subtract amount from Barry's $25,000 ($25000-$2,500) = $22,500.</u>

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Explanation:

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