Question

Harvey rents his second home. During 2015, Harvey reported a net loss of $35,000 from the rental. If Harvey is an active participant in the rental and his AGI is $80,000, how much of the loss can he deduct against ordinary income in 2015?

A. $35,000
B. $25,000
C. $5,000
D. $0

Answer 1

Harvey can deduct $25,000 of his rental real estate loss against his ordinary income, as his AGI of $80,000 is below the phase-out threshold for active participants. Option B.

Step-by-step explanation:

The question asks about how much of a rental real estate loss Harvey can deduct against his ordinary income considering he's an active participant and his adjusted gross income (AGI) is $80,000. The tax code allows taxpayers who actively participate in their rental real estate activities to deduct up to $25,000 of loss against their ordinary income, with the limitation that this loss deduction begins to phase out when a taxpayer's modified AGI exceeds $100,000. Given Harvey's reported $35,000 loss and his $80,000 AGI, which is below the phase-out limit, the maximum loss he can deduct is $25,000.