An apartment complex owner suffers a $5,000 operational loss. For federal income tax purposes, she may:
A. deduct the loss only if she lives in the apartment building
B. deduct the full $5,000 from ordinary income
C. deduct only $3,000
D. offset the loss against any capital gains realized during that tax year
Answer: B. deduct the full $5,000 from ordinary income
Explanation: A loss of up to $25,000 on the operation of a rental property may be deducted from ordinary income (not just from passive income). Note that the rules concerning capital gains and losses are generally relevant only when property is sold. The owner in this question is not selling the apartment complex.
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