Philip is a single taxpayer with modified AGI of $135,000 and an active participation rental real estate loss of $30,000. Assuming he has no other source of passive income, what is his adjusted special loss allowance?

1. $0 2.

$5,000

3. $7,500

4. $25,000

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Generally, when a taxpayer disposes of their entire interest in a passive activity where all gain or loss is recognized, any prior year unallowed passive activity losses are:

1. Included with current-year passive activity gain or loss and allowed in full.

2. Deducted against ordinary income up to $3,000 and carried forward until depleted.

3. Permanently disallowed.

4. Carried forward to offset any future passive activity gains.