Please show each step of solving the problem! I need to understand this before tomorrow.

Question

Janie and Steve purchased an apartment building. They are active with respect to this rental. They have losses of $60,000 from the building this year. They have other income as follows:

Salaries $110,500

Dividends and Interest 8,000

LOSS from an active business (13,500)

How much of the passive loss is suspended?

Answer 1

The passive activity loss rules create a separate "tax basket" for passive activities. Within this basket, losses and gains from different passive activities are "netted" against each other. If the losses and gains (including carryforward suspended losses) net to overall income, the income is included with wage and portfolio income in total taxable income. If the losses and gains net to an overall loss, the loss is suspended and carried forward until passive income is recognized in future years or the activities are sold or go out of existence.

 

In the case of rental property, active participants in a rental real estate activity may deduct up to $25,000 of these losses against other income, including wages and portfolio income.

 

The above show a loss of 60,000 from a rental property, but to qualify for the 25k rule your taxable income should not exceed 100K. In the above example taxable income = 118,500

The qualified passive loss is = 25,000+18,500X.5= 34,250 which qualify as a Loss.

Passive loss suspended =60,000+13,500-34,250= 39,250