A couple who files a joint tax return has $120,000 of AGI before considering a $40,000 loss from rental real estate activities in which they actively participate. What amount of loss must they carryover to the next year?

$0

$10,000

$15,000

$25,000

None of the above

None of the above

Explanation:

The joint tax filling has a tax rate of 12% for amounts up to $77,400 and 22% beyond that amount.

If the loss is adjusted in the current year, then the before tax income becomes $80,000. Therefore, the entire loss should be adjusted in the current year as the carryforward will entail a higher tax outflow in the current period.

Therefore, The answer is None of the above.