LO.7 Last year, Juan, a real estate developer, purchased 25 acres of farmland on the outskirts of town for $100,000. He expects that the land’s value will appreciate rapidly as the town expands in that direction. Since the property was recently reappraised at

$115,000, some of the appreciation has already taken place. To enhance his return from the investment, Juan decides he will begin renting the land to a local farmer. He has determined that a fair rent would be at least $1,500 but no more than $3,500 per year.

Juan also has an interest in a passive activity that generates a $2,800 loss annually. How do the passive loss rules affect Juan’s decision on how much rent to charge for the farmland?

DECISION MAKING