Real Estate Losses are subject to a Phaseout limit
under the Material Participation Exclusion.  The
Phaseout is based on your MAGI, or Modified
Adjusted Gross Income!




Modified Adjusted Gross Income is determined without taking into
account the following:
 

  • Taxable social security benefits or equivalent tier 1 railroad
    retirement benefits.
  • Deductible contributions to an IRA or certain other qualified
    retirement plans.
  • The exclusion allowed for qualified U.S. savings bonds
    interest used to pay higher educational expenses.
  • The exclusion allowed for employer-provided adoption
    benefits.
  • Any passive activity income or loss.
  • Any passive income or loss for real estate professionals.
  • Any overall loss from a publicly traded partnership.
  • The deduction for one-half of self-employment tax.
  • The deduction allowed for interest on student loans.
  • The deduction for qualified tuition and related expenses.

The rental losses allowance is phased out when your modified
adjusted gross income is over $100,000.  For every dollar of
income over $100,000, the allowance is reduced by 50 cents.  The
table below breaks down the phase out in $10,000 increments:

MAGI is
Up to $100,000                                 $
110,000
120,000
130,000
140,000
150,000 or more		 Loss allowance is
25,000
20,000
15,000
10,000
5,000
0

Example: In 2007, Jennifer Whistler had a salary of $130,000,
$4000 of income from a limited partnership, and a $37,000 loss from
a rental building in which she actively participates.  Jennifer may
deduct only $10,000 of the rental loss.  $4,000 of the loss offsets her
income from the partnership.  The remaining $23,000 must be
carried over to 2008.  This is determined as follows:

MAGI                                                   $
 Less: amount not subject to
             phaseout

Amount subject to phaseout        $
Phase-out percentage

Portion of allowance phased out

Maximum loss allowance             $
 Less: amount phased out

Deductible rental loss
 allowance                                         $


Passive loss from real estate     $
 Less: passive income from
            partnership

Passive activity loss                      $
 Less: Deductible rental loss
            allowance

Carry over loss to 2006                 $		 130,000

100,000
-----------
  30,000
          50%
-----------
   15,000

   25,000
   15,000
-----------

   10,000


   37,000

     4,000
-----------
   33,000

   10,000
-----------
   23,000



Exceptions To The Phaseout Rules
A higher phaseout range applies to low-income housing credits
for property placed in service before 1990 and rehabilitation
investment credits from rental real estate activities.  For those
credits, the phaseout of the $25,000 special allowance starts when
your modified adjusted gross income exceeds $200,000 ( $100,000
if you are a married individual filing a separate return and living apart
at all times during the year).

There is no phaseout of the $25,000 special allowance for low-income
credits for property placed in service after 1989 or for the commercial
revitalization deduction.  





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