PASSIVE LOSS PROBLEM-REAL ESTATE INVESTMENT

An investment in a small office building generated the following revenues, expenditures, and depreciation deductions:

Rental receipts 38,500

Mortgage payments (including 17,500 interest) 18,000

Property taxes 8,500

Repairs 6,000 Insurance 4,500

Advertising 2,500

Depreciation-building, fixtures 11,000

Assuming that the investor-taxpayer is in the 28% marginal tax bracket (before and after considering the investment effect), determine a. Taxable income (loss) generated by the investment

b. After-tax cash inflow (outflow) from the investment The taxpayer is an occupational therapist, and this small office building is his only rental property. His primary involvement with the property is interviewing tenants and maintaining records, averaging a few hours per month. The taxpayer has $99,500 of AGI from other sources (his job and income from stocks and bonds).

c. If the taxpayer were weighing this investment and an investment in a CD, what other considerations should be taken into account?