Billy owns an 8% interest in a partnership that owns several parcels of rental r

Question

Billy owns an 8% interest in a partnership that owns several parcels of rental real estate. He is the general partner and manages the buildings, including collecting the rent and arranging for repairs. He is semi-retired and spends the rest of his time attending to his personal investment portfolio. The partnership has a net loss from its rental real estate activity in 2017 of $100,000 and Billy’s allocable share of the loss is $8,000. Assuming that Billy’s AGI and modified AGI for 2017 is $140,000 consisting of portfolio income, including capital gain, what is Billy’s allowable deduction with respect to this activity for 2017? a. $5,000. b. $25,000. c. $0. d. $8,000. My answer is (b) 25,000. Am I on the right track? If not can you tell me what answer you derived at and how.

Explanation / Answer

If the partner is actively participating in the rental real estate, than they are allowed deduction of $25000 from their other non passive income. Since in this case Billy actively participated in the rental real estate that is manages the building including collecting rent and arranging for repairs, he can take the benefit of $25000 reduction from the modified AGI even though it exceeds the loss of $8000

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