Question

Carey, a single taxpayer, purchased a rental house in 2018, which he actively manages. During 2018, Carey had a loss of $14,000 from the rental house. If Carey's adjusted gross income for 2018 is $138,000 before the rental loss, what is the amount of Carey's allowable deduction for the rental activity for 2018?

Answer 1

$6,000

Step-by-step explanation:

First, Carey's allowable deductions repersents 'real estate loss allowance. The real estate loss allowance is an allowance or tax reduction made available to taxpayers who are also owners of rental properties in the U.S.

The specific allowance states that if the adjusted gross income of the owner of the rental property is $100,000 or less, then the taxpayer is allowed a deduction of $25,000. However, this begins to reduce as the adjusted gross income approaches $150,000 and the allowance is completely eliminated when the income exceeds $150,000

Based on this explanation, Carey's Adjusted Gross Income= $138,000, higher than $100,000 but less than $150,000

The calculation= 50% ($150,000- maximum allowable adjusted gross income- $138,000 - Carey's reported adjusted gross income)

=0.50 ($12,000)

= $6,000