REG – Question # 1159 – passive activity losses

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    Anonymous
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    Lane, a single taxpayer, received $160,000 in salary, $15,000 in income from an S corporation in which Lane does not materially participate, and a $35,000 passive loss from a real estate rental activity in which Lane materially participated. Lane's modified adjusted gross income was $165,000. What amount of the real estate rental activity loss was deductible?

    A. $0

    B. $15,000

    C. $25,000

    D. $35,000

    According to the key, the answer is B.

    I thought that to calculate how much of the allowed $25,000 to be phased out, we take the difference the AGI over $100 and multiple by .5. If the amount exceeds the $25,000 then none of the $25K can be used. If the AGI given is $165, then $65K x .5= $32.5K which exceeds the $25K available so none can be taken.

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