Question

In: Accounting

Carey, a single taxpayer, purchased a rental house in 2019, which he actively manages. During 2019,...

Carey, a single taxpayer, purchased a rental house in 2019, which he actively manages. During 2019, Carey had a loss of $14,000 from the rental house. If Carey's adjusted gross income for 2019 is $138,000 before the rental loss, what is the amount of Carey's allowable deduction for the rental activity for 2019? a.$0 b.$6,000 c.$12,000 d.$3,000 e.None of these choices are correct.

a. $0

b. $6,000

c. $12,000

d. None of these choices are correct

Solutions

Expert Solution

The rental housing loss is an allowable deductions, but certain restrictions are applicable on the claiming of the deductions.

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 as the adjusted gross income exceeds $100000, the allowable deductions starts phasing out, and upto the maximum income of $150,000, the deductions phase out completely.i.e no deductions will be allowed if the adjusted gross income exceeds $ 150,000.

In the given case, adjusted gross income = $ 138,000 , which is less than the upper income limit, so the real estate loss allowance can be claimed for the differential income as follows:

Allowable deductions = 50% ( 150,000 - Adjusted gross income )

Allowable deductions = 50% ( 150,000 - 138,000 )

Allowable deductions = 50% * $ 12,000

Allowable deductions = $6,000

Thus the correct option is ----------------B i.e $ 6,000.

ekkarill92 answered 1 year ago
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