Michelle is an active participant in the rental condominium property she owns. during the year, the property generates a ($16,900) loss; however, michelle has sufficient tax basis and at-risk amounts to absorb the loss. if michelle has $116,900 of salary, $13,800 of long-term capital gains, $3,950 of dividends, and no additional sources of income or deductions, how much loss can michelle deduct?

$7,675

Explanation:

Since Michelle's modified adjusted gross income (MAGI) exceeds $100,000, then she is not entitled to receive the full $25,000 allowance (small landlord exception).  

her MAGI = $116,900 + $13,800 + $3,950 = $134,650

the allowance phase out = ($134,650 - $100,000) x 50% =$17,325

Michelle can deduct = $25,000 - $17,325 = $7,675

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