Question

brandon, a single taxpayer, had a loss of $48,000 from a rental real estate activity in which he actively participated. he also had $27,000 of income from another rental real estate activity in which he actively participated. he acquired both investments in the current year. if brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities, how much loss from rental activities can he use to offset his nonpassive

Answer 1

Brandon can use the full $21,000 net loss from his rental real estate activities to offset his nonpassive income, reducing his adjusted gross income to $63,000 for tax purposes.

Step-by-step explanation:

The question involves calculating the amount of rental real estate activity loss that Brandon can use to offset his nonpassive income in accordance with the tax code. Brandon has a total rental real estate activity loss of $48,000 and a rental income of $27,000. ]

When it comes to rental real estate activities in which there is active participation, the IRS allows the taxpayer to deduct up to $25,000 of loss against nonpassive income if their modified adjusted gross income (MAGI) is $100,000 or less.

This deduction phases out by $0.50 for each dollar of MAGI above $100,000 and is completely phased out when MAGI is $150,000 or more.

In this case, Brandon's adjusted gross income (AGI) is initially $84,000 before considering passive activities.

First, we offset the $48,000 loss with the $27,000 income from the other rental activity, resulting in a net rental activity loss of $21,000.

Since Brandon's AGI is below $100,000, he is allowed to deduct this entire net loss against his nonpassive income. Therefore, Brandon can use the full $21,000 net loss to offset his nonpassive income of $84,000, reducing his AGI to $63,000 for tax purposes.