Roy, a Resident of Michigan, Owns 25 Percent of a Fourplex

question 45

Essay

Roy, a resident of Michigan, owns 25 percent of a fourplex in the nearby college town of Ann Arbor with three other friends. The fourplex is rented to students who attend the University of Michigan. Roy's responsibility is to approve new tenants each year and take care of any maintenance issues. During the year, the rental property generated a $25,000 loss, which was split equally among Roy and his three friends. Assuming Roy's only source of income was $145,000 of salary, how much of the rental loss can Roy deduct this year and what amount must be carried forward?

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Definitions:

Dividends

Dividends are the portion of profit a company decides to distribute to its shareholders, often on a regular basis.

Equity

The value of an asset after deducting the cost of liabilities, representing the owner's interest in a company.

Investing Activities

Investing activities are financial transactions related to the acquisition or disposal of long-term assets and other investments not considered cash equivalents, as detailed in the statement of cash flows.

Financing Activities

Activities that result in changes in the size and composition of the equity capital or borrowings of the company, as reported in the statement of cash flows.