[JimmySungChen]

Hello guys, I am wondering,

The $25,000 allowance for active loss of rental real estate, I know that once the taxpayer AGI exceeds $100,000, the phase out starts as 50% of the exceeds, so if AGI is $110,000, the deduction allowable is $5000 (50% x $110,000 – $100,000). What I am confused is that what if AGI is below $100,000, do they get to deduct all $25,000 or is it that the taxpayer cannot take advantage of this rule unless their AGi exceeds $100,000? For some reason, I can’t get around it and the Becker texts is a little confusing.

Thank you!

+EDIT+ Also, what I am confused about is, let’s say if the taxpayer’s AGI is $100,010, that means I will be able to deduct only $5, and if the AGI is $140,000, that means I can deduct $20,000? So the phase out work in ascending pattern?

[jennahoovahh]

@JimmySungChen I think you are looking at this exception backwards. The mom and pop exception allows the $25,000 deduction of passive activity losses when AGI is below $100,000. Once AGI hits $100,000 the phaseout begins. So when AGI is $110,000 the deduction allowed is reduced by 50% of 10,000 (110,000 AGI – 100,000 phaseout begins). So the deduction is reduced by 5,000 still allowing the taxpayer to deduct $20,000. In your second example of an AGI of 100,010, the deduction would be reduced by 50% of 10. The taxpayer could still deduct 25,000 – (50% * 10) = 24,995.

I hope this helps!

AUD: 91
BEC: 85
REG: 84
FAR: 7/2/15

[JimmySungChen]

@jennahoovahh Hi thanks for responding. Yes, you are right. I had a brain fart when looking at the solution, it says that with the calculation it would be $20,000 *LOSS* INCLUDED in return and $5,000 LOSS EXCLUDED. Which means the taxpayer would be able to report $20,000 LOSS which would decrease the total taxable amount. HAHAHA, sorry, I was looking at it with the nature of reportable income or gain. Thank you again!

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