Alexa Owns Essay

359 Words2 Pages
61. (LO4) Assuming Alexa receives $20,000 in gross rental receipts, answer the following questions: Gross rental receipts $20,000 Less Tier 1 (2,000) (property taxes) Income after Tier 1 18,000 Less Tier 2 (5,900) (insurance, rep & main, utilities) Income after Tier 2 12,100 Less Tier 3 (14,500) Taxable rental income (loss) (2,400) a. What effect does the rental activity have on her AGI for the year? According to the text, a rental activity (including a second home rental) is considered to be a passive activity. Because they are passive losses, losses from rental property are generally not allowed to offset other ordinary or investment type income. Affect on AGI $0 b. Assuming that Alexa’s AGI from other sources is $90,000, what effect does the rental activity have on Alexa’s AGI? Alexa makes all decisions with respect to the property. Alexa is an active participant in the property therefore she can deduct up $25,000 of the rental loss. Therefore she can deduct the full $2,400 of taxable income loss. New AGI 90,000-2,400= $87,600 c. Assuming that Alexa’s AGI from other sources is $120,000, what effect does the rental activity have on Alexa’s AGI? Alexa makes all decisions with respect to the property. According to the text, the exception amount for active owners is phased out as income increases: the $25,000 maximum exception amount is phased out by 50 cents for every dollar the taxpayer’s adjusted gross income (before considering the rental loss) exceeds $100,000. 120,000-100,000*.5= 10,000 phase out 25,000-10,000= 15,000 total deductible loss; Alexa can still deduct the $2,400 because her loss is less than the 15,000. New AGI 120,000-2,400= $117,600 d. Assume that Alexa’s AGI from other sources is $200,000. This consists of $150,000 salary, $10,000 of dividends, and $25,000 of

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