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How is the rental real estate loss treated

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Problem - Michael owns a rental house that generated a $10,000 loss this year. Michael manages the rental property but does not meet the standards for material participation. Michael is a college professor and has wages of $60,000 and $5,000 in dividend income. How is the $10,000 rental real estate loss treated on Michael's tax return?

a. $5,000 of the loss is deductible against the passive dividend income.

b. The rental loss is not deductible because Michael does not have any passive income.

c. $10,000 loss is not deductible because Michael does not materially participate in the rental activity.

d. $10,000 loss is deductible under the rental real estate exception because Michael actively participates in the rental activity.

Reference no: EM132658645

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