Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive activity loss from a real estate rental activity in which she actively participates. If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?
a. $0
b. $10,000
c. $25,000
d. $26,000
e. None of the above
b
RATIONALE: A rental loss of $10,000 is deducted against the passive activity income from the limited partnership interest. None of the remaining $16,000 rental loss is deducted against Josie's salary, even though she actively participates in the activity. The special $25,000 offset for real estate rental activities is reduced to $0 [$25,000 – 50%($155,000 – $100,000)]. Therefore, of the remaining $16,000 loss, none can be deducted in the current year.
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