Active Participation

### Which of the following does NOT qualify an investor as an active participant? - [ ] Approving new tenants. - [ ] Deciding on rental terms. - [x] Owning a 10% or less interest in the property. - [ ] Approving repair expenditures. > **Explanation:** Owning a 10% or less interest in the property means the investor does not qualify as an active participant, even if they engage in management tasks. ### How much in passive losses can an active participant with an AGI of $90,000 deduct against other income? - [ ] $50,000 - [ ] $10,000 - [x] $25,000 - [ ] $30,000 > **Explanation:** If the AGI is under $100,000, an active participant can deduct up to $25,000 of passive losses against other income. ### At what AGI does the ability to deduct passive losses phase out completely for active participants? - [x] $150,000 - [ ] $100,000 - [ ] $200,000 - [ ] $50,000 > **Explanation:** The $25,000 passive loss deduction phases out entirely when adjusted gross income reaches $150,000. ### Which of the following is a benefit of being classified as an active participant? - [ ] Exemption from property taxes. - [ ] Eligibility for a mortgage at lower rates. - [x] Deduction of up to $25,000 in passive losses against other income. - [ ] Exclusive access to government grants. > **Explanation:** The primary benefit of active participation is the deduction of up to $25,000 in passive losses against other income for those with AGI under $100,000. ### What is the phase-out rate for the loss deduction as AGI increases above $100,000? - [x] 50% per dollar over $100,000. - [ ] 10% per dollar over $100,000. - [ ] 75% per dollar over $100,000. - [ ] 25% per dollar over $100,000. > **Explanation:** The $25,000 passive loss allowance phases out at a rate of $0.50 for every dollar of AGI over $100,000. ### Can a limited partner qualify as an active participant in rental property management? - [ ] Yes, always. - [ ] Yes, if they participate in decision-making. - [ ] Yes, if they own more than 10%. - [x] No, limited partners cannot qualify. > **Explanation:** Limited partners are explicitly excluded from meeting the active participation requirements. ### Why is the concept of active participation important in real estate investing? - [ ] It sets rental prices. - [ ] It increases the property's market value. - [x] It affects the taxation of rental income and losses. - [ ] It determines residential zoning laws. > **Explanation:** Active participation affects how rental income is taxed and the potential for deducting passive losses, which is critical for tax planning. ### If Emily has an AGI of $110,000, how much of her passive losses can she potentially deduct? - [ ] $25,000 - [ ] $15,000 - [x] $20,000 - [ ] $10,000 > **Explanation:** The deduction phases out at $110,000 AGI, reducing the $25,000 maximum by 50% of $10,000 ($5,000), leaving a $20,000 deduction. ### How does approving capital or repair expenditures contribute to an investor's active participation status? - [x] It shows involvement in major decisions affecting the property. - [ ] It contributes to the property's aesthetic value. - [ ] It covers routine maintenance. - [ ] It reflects temporary engagement with tenants. > **Explanation:** Approving major expenditures reflects a vested interest in the property's significant decisions, indicating active participation. ### What happens with Ann’s taxable income if she’s an active investor with an AGI of $95,000 and incurs a $30,000 tax loss from her property? - [x] She can deduct up to $25,000 from her salary, resulting in $70,000 taxable income. - [ ] She can deduct the full $30,000, resulting in $65,000 taxable income. - [ ] She cannot deduct anything. - [ ] She can deduct up to $15,000 from her salary, resulting in $80,000 taxable income. > **Explanation:** Ann, with a $95,000 AGI and a $30,000 tax loss, can deduct up to $25,000 (the max allowable), resulting in paying taxes on $70,000 ($95,000 - $25,000).