Michelle is an active participant in the rental condominium property she owns. During the year, the property generates a ($18,000) loss; however, Michelle has sufficient tax basis and at-risk amounts to absorb the loss. If Michelle has $121,000 of salary, $10,600 of long-term capital gains, $3,600 of dividends, and no additional sources of income or deductions, how much loss can Michelle deduct

The loss that could be deducted is $7,400

Explanation:

The computation of the amount of loss deducted is shown below:

Total income of Michelle is

= $121,000 + $10,600 + $3,600

= $135,200

Exemption amount is $25,000

Modified gross income i.e. adjusted is $100,000

The phase amount would be

= ($135,200 - $100,000) × 0.5

= $17,600

So, the loss would be

= $25,000 - $17,600

= $7,400

Hence, the loss that could be deducted is $7,400