Passive Loss Limitations (LO 4.2) Walter, a single taxpayer, purchased a limited
ID: 398810 • Letter: P
Question
Passive Loss Limitations (LO 4.2)
Walter, a single taxpayer, purchased a limited partnership interest in a tax shelter in 1991. He also acquired a rental house in 2017, which he actively manages. During 2017, Walter's share of the partnership's losses was $11,500, and his rental house generated $41,000 in losses. Walter's modified adjusted gross income before passive losses is $112,500.
If an amount is zero, enter "0".
a. Calculate the amount of Walter's allowable deduction for rental house activities for 2017.
$
b. Calculate the amount of Walter's allowable deduction for the partnership losses for 2017.
$
Explanation / Answer
a. Calculate the amount of Walter's allowable deduction for rental house activities for 2017.
Loss deduction = $25,000 - (50% of the tax payer's modified total income in excess of $100,000)
= $25,000 - 50% of 12,500
= $18,750
Working note: Determine the total income in excess of $100,000.
Total income in excess of $100,000 - $ 112,500 - $ 100,000 = $12,500
Details: W’alters modified gross income is $112,500. The rental house generated a loss of $41,000 which is an excess of $100,000. The allowable loss deduction is difference between $25,000 and 50% of the taxpayer’s modified total income in excess of $100,000. Individual taxpayers deduct rental property of $25,000 losses against other income. A loss of $25,000 deducted is phased out when the taxpayer’s modified gross income exceed $100,000. Up to $25,000 loss can be deducted from the other property.
b) $0 (ZERO)
A partner's deductible loss from a partnership is limited to the basis of the partner's partnership interest at the end of the year in which the loss was incurred. The partner's partnership basis cannot be reduced to below zero. Any unused losses may be carried forward and reported in a future year when there is partnership basis available to be reduced by the loss.