section 469 passive activity loss limitation rules for...

WHO TO CONTACT DURING THE LIVE PROGRAM

For Additional Registrations:

-Call Strafford Customer Service 1-800-926-7926 x1 (or 404-881-1141 x1)

For Assistance During the Live Program:

-On the web, use the chat box at the bottom left of the screen

If you get disconnected during the program, you can simply log in using your original instructions and PIN.

IMPORTANT INFORMATION FOR THE LIVE PROGRAM

This program is approved for 2 CPE credit hours. To earn credit you must:

• Participate in the program on your own computer connection (no sharing) – if you need to register

additional people, please call customer service at 1-800-926-7926 ext. 1 (or 404-881-1141 ext. 1).

Strafford accepts American Express, Visa, MasterCard, Discover.

• Listen on-line via your computer speakers.

• Respond to five prompts during the program plus a single verification code.

• To earn full credit, you must remain connected for the entire program.

Section 469 Passive Activity Loss Limitation Rules for Individual Taxpayers: Loss limitations, Ordering Rules and Utilizing Losses After Tax ReformTUESDAY, OCTOBER 22, 2019, 1:00-2:50 pm Eastern

FOR LIVE PROGRAM ONLY

Tips for Optimal Quality FOR LIVE PROGRAM ONLY

Sound Quality

When listening via your computer speakers, please note that the quality

of your sound will vary depending on the speed and quality of your internet

connection.

If the sound quality is not satisfactory, please e-mail [email protected]

immediately so we can address the problem.

mailto:[email protected]

October 22, 2019

Section 469 Passive Activity Loss Limitation Rules for Individual Taxpayers: Loss limitations, Ordering Rules and Utilizing Losses After Tax Reform

Robert S. Barnett, Partner

Capell Barnett Matalon & Schoenfeld

[email protected]

John H. Skarbnik, Professor of Taxation,

Fairleigh Dickinson University; Tax Counsel

McCusker Anselmi Rosen & Carvelli

[email protected]

Elizabeth Yablonicky, Senior Counsel

Johnson Moore

[email protected]

Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY

THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY

OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction

described in the associated materials we provide to you, including, but not limited to,

any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are

subject to change. Applicability of the information to specific situations should be

determined through consultation with your tax adviser.

Section 469 Passive Loss Limitation

Rules for Individual Taxpayers

Strafford Webinar, October 22, 2019

John [email protected]

Robert S. [email protected]

Liz [email protected]

Agenda

1. Passive activity rules of Section 469

2. Material participation rules

3. Real estate professional standards

4. TCJA considerations

5. Disposition of passive activity

investments

6. Form 8582

6

Agenda






investments

6. Form 8582

7

Passive Activity Rules of Section 469

• IRC limits the amount of deductions and credits that taxpayers can claim from passive activities

• A taxpayer can claim passive activity losses (or credits) only up to the amount of his passive activity income (or tax)

• Any excess losses or credits can be carried over to the next year, and upon the taxpayer’s disposition of the entire activity, all disallowed passive activity losses can be claimed

8


• A passive activity is any trade or business

of a taxpayer in which the taxpayer does

not materially participate, and any rental

activities of the taxpayer, regardless of the

taxpayer’s level of participation. I.R.C. §

469(c)(1), (2)

9


• Trade or business = done with continuity and regularity, not a hobby or amusement

• Groetzinger, 480 US 23 (1987): full time gambling was trade or business

• Rental real estate can be a trade or business if:– Regular and continuous involvement

– Intent to earn profit

– Not for investment or personal use

– Held out for rent to customers

– Active management

– Number of properties rented

10

Surtax on Passive Income

• Section 1411 imposes a 3.8% (Medicare) surtax on all of a taxpayer’s passive income

• Again, rental income is per se passive regardless of the taxpayer’s level of participation

• Only qualification as a real estate professional makes rental income non-passive and avoids the 3.8% surtax. Treas. Reg. § 1.1411-4(g)(7)(i).

11

Case Study: Conner v. Comm.

• Issue was whether husband and wife taxpayers were required to treat loss from sale of certain real estate as capital v. ordinary business loss. Tax Court held that the loss incurred from the sale of real estate was capital, not ordinary, loss

• Expenses incurred by the LLC’s real estate holding company were investment expenses and did not qualify as ordinary and necessary business expenses. Deduction for LLC’s expenses was subject to PAL rules.

• Conner v. Comm., 123 AFTR.2d 2019-2015, affirming T.C. Memo. 2018-6

12

Agenda






investments

6. Form 8582

13

Material Participation: In General

• “Material participation” means that the taxpayer is involved in the operations of the activity on a regular, continuous and substantial basis. I.R.C. § 469(h)(1).

• Activities that are primarily passive (Reg. §1.469-5T(f)(2)):– Work not of a type customarily done by an owner

– Work done as an investor (reviewing financials, monitoring finances)

– Management, if another manager or paid manager does more

– Work done to avoid PAL limitations

14

Material Participation: Seven Tests

• Material participation means taxpayer is involved in the activity on a regular, continuous and substantial basis

• 7 tests for material participation (Reg. § 1.469-5T(a)):– Taxpayer spends more than 500 hours/year

– Taxpayer’s participation is substantially all of the participation

– Taxpayer spends more than 100 hours, and no one else spent more time on the activity

– Taxpayer spends at least 100 hours on each of several activities, and more than 500 hours total on all such activities

– Taxpayer met material participation for any 5 tax years out of the previous 10 years

– If the activity is a personal service activity, taxpayer materially participated for any 3 years before the current tax year

– Based on all facts and circumstances, taxpayer’s participation was regular, continuous and substantial

15

C Corp Material Participation

• A C corp or personal service corporation will be deemed to materially participate if one or more shareholders who own more than 50% of the value of the corporation materially participate

• A C corp which is not a personal service corp, during the 12-month period ending on the last day of the taxable year, must have:– at least one full time employee who actively manages

the entity

– at least 3 employees, who do not own 5% or more of the stock and work full time, and

– deductible expenses (excluding depreciation, taxes and interest) that exceed 15% of gross income

16

Material Participation Nuances

• A taxpayer only needs to meet one of the seven tests to prove material participation

• Spouses’ participation is counted together. Treas. Reg. § 1.469-9(c)(4).

• Personal services of an individual who is an employee are not treated as performed in the real estate trade or business unless the individual is a 5% owner of the business. IRC § 469(c)(7)(D)(ii).

• Rental real estate activity can’t be grouped with other activities. Reg. § 1.469-9(e)(3)(i).

17

Hypotheticals: Material Participation

• Frankie operates a small ice cream stand during the summer months. Frankie usually works at the stand about 2 hours per night throughout the summer. Frankie hires part-time employees to cover occasional nights off. If Frankie works 175 hours during the summer, will they be deemed to materially participate?

• Kay, a full time teacher, owns interests in Partnership 1 and Partnership 2. Kay performs more than 100 hours of services for each partnership, but the other partners participate more than Kay does. If Kay spent 175 hours on Partnership 1 and 400 hours on Partnership 2, will Kay be considered to have materially participated?

18

Hypotheticals: Material Participation

• Sam has been a restaurant operator for 20 years, but retired on December 31, 2015. While continuing to own the restaurant, Sam no longer participates in the operations. Would income from the restaurant in 2016 be passive? What about income in 2019?

• Max has been a partner in a law firm partnership. Max retires from the firm, but continues to receive retirement payments from the partnership. How long will the retirement payments be considered non-passive?

19

Substantiating Material Participation

• Participation in an activity may be established by any reasonable means

• Contemporaneous daily time reports or logs (appointment books, calendars, or narrative summaries) are best, but

• Time logs are not required if participation may be established by other reasonable means that identify services performed over time and the approximate number of hours spent performing them during that period. Reg. § 1.469-5T(f)(4)

• “Ballpark guesstimate” not good enough. Penley v. Comm., T.C. Memo. 2017-65; Moss v. Comm., 135 T.C. 365 (2010).

20

Case Study: Penley v. Commissioner

• Taxpayer claimed he was a real estate professional and that his $96K non-passive ordinary loss was deductible

• IRS disallowed $57K of the loss on the ground that taxpayer was not a real estate professional

• Taxpayer produced a calendar which contained a brief explanation of the work he performed. He claimed to have worked 10-14 hours every Saturday and Sunday, and 4-6 hours most weekdays, for a total of 2,520 hours

• Taxpayer was also a full-time employee of a corporation and an active licensed real estate broker. Court found he worked 2,194 hours for the corporation

• How would you rule?

21

Case Study: Penley v. Commissioner

• Court held that taxpayer greatly exaggerated the time he spent on real estate activities

• Taxpayer’s calendar rounded all entries to the nearest hour or half-hour, and did not provide documentation of small tasks such as brief emails, phone calls or hardware purchases

• Taxpayer asked court to accept that he worked a total of 4,714 hours, or more than 12 hours every day on average

• Court imposed the accuracy related penalty

• Penley v. Comm., T.C. Memo 2017-65

22

Case Study: Lamas v. Commissioner

• Taxpayers did not have contemporaneous

time spent records for real estate

development

• Produced telephone records and

testimony of 10 witnesses to prove time

spent

• Court found the testimony credible

23

Material Participation Rules: Grouping

• If a taxpayer doesn’t materially participate in several activities, she may group the activities into a single activity in which she does materially participate

• Makes it easier to achieve the necessary hours and convert passive activities to non-passive

• Activities can be grouped if they constitute an “appropriate economic unit” for measuring gain or loss.

25


• Factors for determining whether a group can be treated as a single activity (an “appropriate economic unit”):1. Similar types of businesses

2. Extent of common control

3. Extent of common ownership

4. Geographical location

5. Interdependencies among the businesses

• Example (Treas. Reg. § 1.469-4(c)(3)):– Taxpayer owns a bakery and a movie theater in Baltimore, and a

bakery and movie theater in Philadelphia

– Potentially may be grouped:• As one single activity

• Two activities: movie theater and bakery

• Two activities: Baltimore and Philadelphia

• Four separate activities

26


• More examples:

– Chef owns two restaurants and a catering business; likely can group under these factors

– Doctor is part owner of medical practice and partnership (with the same doctor-partners) that rents building to the practice; likely can group

– Taxpayer’s commercial and residential real estate development businesses were an appropriate economic unit. Lamas v. Commissioner.

27

Grouping Election

• Inform IRS of your grouping based on an appropriate economic unit

• Election is binding for that year and all subsequent years until there is a material change in the taxpayer’s facts and circumstances and the taxpayer files a revocation of the election in a subsequent tax return

• Late election possible under Rev. Proc. 2010-13 if returns timely filed consistent with aggregation and late election made before IRS discovers omission OR taxpayer had reasonable cause for failing to elect

28

Material Participation Rules: Rental Activities

• Rental activities can’t be grouped with other activities (even if an appropriate economic unit) unless: – The rental activity, or the other business activity,

is insubstantial in relation to the other, or

– Each owner of the business activity has the same proportionate ownership in the rental activity

• Example: husband and wife grocery store business, and rental of building to grocery store, can be grouped into a single trade or business activity. Treas. Reg. § 1.469-4(d)(1)(ii), Ex. 1

29

Grouping Election for Rental Real Estate

• There is no “election” to be a real estate professional –just meet the tests under § 469(c)(7)(B), or not

• Must elect on original tax return to treat all interests in rental real estate as a single rental real estate activity– “In accordance with Reg. § 1.469-9(g)(3), the taxpayer

hereby states that it is a qualifying real estate professional under I.R.C. § 469(c)(7)(B), and elects under I.R.C. §469(c)(7)(A) to treat all interests in rental real estate as a single rental real estate activity.”

• Late election possible under Rev. Proc. 2011-34 if returns timely filed consistent with aggregation and taxpayer had reasonable cause for failing to elect

• Revoke only with material change in facts and circumstances

30

Aggregation with limited partnership interest

• If taxpayer elects to aggregate rental real estate activities and at least one of the activities is held as a limited partnership, then entire activity will be treated as a limited partnership interest for material participation. Treas. Reg. § 1.469-9(f).

• Generally, a limited partner is not treated as materially participating, unless he meets Treas. Reg. § 1.469-5T(a)(1), (a)(5) or (a)(6).

31

Rental Activity Exclusion

• Rental property does not include tangible

property—

• Temp. Reg. § 1.469-1T(e)(3)(B)(ii)

– The average rental period is 7 days or less

– The average period of customer use is 30

days or less and the owner provide significant

services; or

– Extraordinary services are provided

• Temp. Reg. § 1.469-1T(e)(3)(B)(ii)

32

Case Study: Eger v. US

• Greg Eger met the requirements to be a real

estate professional in 2007, 2008 and 2009.

The Egers owned numerous rental

properties, including 3 resort properties.

• Government asserted that the 3 resort

properties were not rental properties because

the average period of customer use was 7

days or less. Reg. § 1.469-1T(e)(3)(ii)(A)

• The sole issue in the case was whether the

resort properties qualified as rental properties

33


• The 3 resort properties were in Los Cabos, Mexico, Avon, Colorado, and Maui, Hawaii

• The Egers contracted with 3 unrelated companies to rent each property to guests on a transient basis, for and on behalf of the Egers

• The Egers grouped their 33 rental properties including the resort properties, as a single real estate activity

• IRS rejected the grouping of the resort properties with the other rental properties, on the ground that the contracts were “marketing agreements,” not leases

• The sole issue in the case was whether the resort properties qualified as rental properties

34


• Court held that the “management companies were not customers who had a continuous right to use the resort properties.” Rather, the management companies provided marketing and rental services for the Egers to rent out the resort properties.

• Even if the contracts gave the companies a recurring right to use the properties, the Egers did not prove that the average period of customer use was more than 7 days for each of them

35

To Group or Not to Group

• What are the benefits and detriments of electing to treat all real estate activities as one activity?– Easier to meet material participation

– If rental activities produce positive income, keeping the activity passive allows income to offset other passive losses. However, passive income would be subject to NII tax.

– If planning to sell a passive activity with suspended losses, may be better to make election after the entity is sold

– Making election may allows taxpayer to use suspended losses from other activities

36

Deduction for Taxpayers who Actively Participate

• IRC § 469(i)(1) permits eligible taxpayers who actively participate in rental real estate activities to deduct up to $25,000 of losses. – Taxpayer must own 10% or more of the activity. IRC §

469(i)(6)(A).

– The $25,000 allowed loss is reduced by 50% of the taxpayer’s AGI which exceeds $100,000. IRC § 469(i)(3).

• The active participation standard can be satisfied without regular, continuous and substantial involvement in the activity. It requires only significant and bona fide participation in making management decisions (such as approving new tenants, deciding on rental terms, approving capital expenditures) or arranging for others to provide services such as repairs. Maguire v. Comm., T.C. Memo. 2012-160.

37

Agenda






investments

6. Form 8582

38

Real Estate Professional Standards

• Rental RE activities are passive unless:– Taxpayer is a real estate professional under § 469(c)(7)

– AND

– Taxpayer materially participates in the activity (may use grouping to meet material participation)

• Real estate professional: – more than one-half of the personal services performed in

trades or businesses by the taxpayer in such taxable year are performed in real property trades or businesses in which the taxpayer materially participates, and

– such taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates

39


• “Real estate activities” is broader than just rental activities

• “Real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business. IRC. § 469(c)(7)(C).

• That is, all of a taxpayer’s real estate activities are taken into account in determining whether the 750-hour requirement is met, not merely the rental activities. Treas. Reg. § 1.469-9(d).

• Except for employee services, work not done by owners, work done as investor…

40


• A taxpayer who qualifies as a real estate professional has overcome the presumption that all rental activities are passive

• Taxpayer still must prove, however, that he materially participated in the rental real estate activity. Reg. § 1.469-9(e)(1)

• Initial burden of proof is on taxpayer. Tax. Ct. Rule 142(a)(1).

• Burden shifts to government if taxpayer complied with substantiation requirement, maintained all relevant records, and cooperated with the IRS during audit. IRC § 7491.

41

Case Study: Pourmirzaie v. Comm.

• Taxpayer bears the burden of proving that

he qualifies as a real estate professional

• Married couple claimed that the wife was a

real estate professional during 2010-2012.

The taxpayers owned 4 single family

homes, in in Discovery Bay and San

Diego, CA, Tucson, AZ, Bremerton, WA,

and a 4-unit property in San Jose, CA

42


• Taxpayer had calendars for 2010 and 2011 but none for 2012

• Wife testified she spent 15-20 hours/week at the San Jose property, but could not recall when she arrived or left

• She could not remember what activities she performed for the San Diego property

• She testified she spent 1-2 hours/month communicating with a property manager about the Tucson property

• She dealt with Discovery Bay and Bremerton tenants only by phone and could not recall how long she spent

• 2011 calendar showed that the couple spent approx. 2,000 hours but did not specify who provided the services

43


• Court held that wife was not a real estate

professional and that she spent only 416

hours per year on real property business

• Court imposed accuracy related penalty

• Pourmirzaie v. Comm., T.C. Memo. 2018-

26

44

Real Estate Professional: Grouping Rentals

• Rental RE activities are passive unless

taxpayer is a real estate professional or

rental RE activities are grouped to meet

material participation

– Rental RE can’t be grouped with non-RE

businesses to meet material participation for

the rental RE activity, Treas. Reg. § 1.469-

9(e)(3)(i), but

– Rental RE can be grouped with other

activities to find an appropriate economic unit

45

Case Study: Stanley v. US

• Taxpayer was the President/Attorney of a real estate management S corp and a related telecom service company in which he owned more than 5% interest

• Taxpayer provided over 750 hours of services to the real estate company and taxpayer asserted he was a real estate professional

• Government asserted that taxpayer had to show how much of his time was spent providing legal services for the company

• Government also asserted that taxpayer could not group real estate activities with non-real estate activities

46

Case Study: Stanley v. US

• Court held that taxpayer was a real estate professional

• Taxpayer did not have to show how much time was spent on providing legal services to the company:

“Section 469 does not require that the servicesperformed in a real property trade or business be of anyspecific character or that all such services must bedirectly related to real estate. Rather, the services mustbe performed in ‘real property trades or businesses inwhich the taxpayer materially participates.’”

• Court held that although a taxpayer could not group non-real estate rental activities in determining whether the taxpayer materially participates, law “does not categorically bar a real estate professional from grouping rental and non-rental activities for other purposes, including for purposes of determining passive activity loss and credit.”

• Stanley v. US, 16 AFTR.2d 2015-6766

47

Active Participation for Real Estate

• Factors for rental real estate activity as section 162 trade or business: – Type of property (commercial or residential)

– Number of properties rented

– Owner’s or agent’s day-to-day involvement

– Type and nature of services provided by lessor

– Lease terms (net v. traditional, duration)

• Owner with large number of commercial properties where owner provides significant services day-to-day under traditional long-term lease most likely to be viewed by IRS as a trade or business

49

Rev. Proc. 2019-38

• Safe harbor treating a rental real estate enterprise as a trade or business, solely for purposes of § 199A deduction

• Meet 4 requirements: 1. Keep separate income & expense books for

each rental RE enterprise

2. Perform 250 or more hours of rental services per year

3. Maintain contemporaneous time spent logs

4. Attach safe harbor statement to tax return each year

• Supersedes Notice 2019-7

50

Rev. Proc. 2019-38

• For 250+ hour requirement, rental services include:– Advertising to rent the real estate

– Negotiating and executing leases

– Verifying info in tenant applications

– Collecting rent

– Operating, maintaining and repairing property

– Managing the property

– Purchasing materials for the property

– Supervising employees and contractors

• Rental services done by owner, employees, agents and/or independent contractors can count toward the 250 hours

• Contractors need to provide time spent detail

51

Rev. Proc. 2019-38

• These activities don’t count toward the 250 hours:

– Financial or investment management activities

– Purchasing properties

– Studying financial statements or reports on operations

– Planning, managing or constructing long-term capital improvements

– Time spent traveling to and from the properties

52

Rev. Proc. 2019-38

• Not eligible for the safe harbor: – Real estate used by the taxpayer as a residence

– Real estate rented under a triple net lease (lessee pays taxes, fees and insurance, and to maintain the property)

• Although no safe harbor, NNN leases may still be a trade or business based on all facts and circumstances

• Consider renegotiating NNN leases so owner can provide 250 hours of services annually (cumulatively on all properties that owner can aggregate)

53

Planning Opportunities

• Minimize the impact of PAL limitations by increasing passive income

• Make timely election on tax return to treat all interests in rental real estate as a single rental real estate activity. Treas. Reg. §1.469-9(g)– Makes it easier to meet material participation

• Keep contemporaneous time spent logs on RE activity AND other activities– Makes it easier to prove material participation – more than 500

or 750 hours/year AND more than ½ of total time on all activities

• Consider renegotiating NNN leases so owner can provide 250 hours of services annually (cumulatively on all properties that owner can aggregate)– Makes it easier to meet § 199A safe harbor

54

Agenda






investments

6. Form 8582

55

TCJA Considerations

• Still Here:

– Basis rules

– At-risk rules

– Passive Activity Loss rules

56

TCJA Considerations

• Losses:

– Section 199A carryover losses

– Excess business losses

– Net operating losses

57

TCJA Considerations

• Suspended Losses:

– Losses disallowed under IRC § 469 are

suspended and carried forward

– Prop. Reg. § 1.199A-3(b)(1)(iv)

• When allowed

• Attribute to trade or business

• Reduce taxable income and QBI?

58

TCJA Considerations

• Losses prior to Jan. 1, 2018—

– Do not reduce QBI, BUT

– Do reduce NI!

– Final regulations FIFO

– Section 461(l) Excess Business Loss

59

TCJA Considerations

• Timing / Order

– Losses now subject to EBL

– Post 2017 business losses

– Negative QBI carryforward

– Also for passive TP

– Apply § 469 before § 461 EBL

– § 163(j) before § 469, 461, 465

60

Agenda






investments

6. Form 8582

61

Disposition of Passive Activity Investments

• Suspended losses may be utilized to offset

non-passive income. IRC. § 469(g)(1).

• Requires disposition of ENTIRE ACTIVITY

in a FULLY TAXABLE TRANSACTION

(not § 351, 721, 1041, or 1031)

• Loss is then treated as not from a passive

activity

• Complete worthlessness may qualify

62

Disposition of Entire Passive Activity

• If taxpayer disposes of less than entire

interest in the activity – losses remain

suspended and passive

• What constitutes an entire activity?

• C and S corps separately group activities

• Special rule: If dispose of substantially all

and can establish losses with reasonable

certainty

63

Disposition of Passive Activity

• Gain recognized on sale/disposition

• Of interest in property

• Used in activity and disposition

• TREATED AS ACTIVITY INCOME

• Passive income – if passive activity

• In year of disposition

64

Disposition of Passive Activity: Allocation

• Allocation example:

– Sell 10-floor building

– Use 7 floors in trade or business

– Rent 3 floors

– Reasonable allocation

65

Disposition of Passive Activity: Installment Sale

• Be careful

• Must be passive activity at sale

• And when recognized

• Gain remains passive when recognized

66

Rental Real Estate

• Rental income and gain or loss from sale

• Derived in ordinary course of trade or

business IF taxpayer is a real estate

professional and materially participated in

the activity

• Aggregation election respected

67

Sale of S-corp Shares or Partnership Interest

• Special rules

• Allocate ratably to activities

• Installment sale of entire interest

• Use proportionate part of suspended loss

68

Agenda






investments

6. Form 8582

69

Form 8582

• Computation of PAL limitation for year

• Utilization of suspended PALs

• Worksheets 1, 2, 3

70

Form 8582

71

Form 8582 cont.

72

Form 8582 Worksheet 1

• Rental real estate with active participation

• Combine:

a) Income: Sch. E profit + Form 4797 gain

b) Loss: Sch. E loss + 4797 loss and vice

versa

• Separate Sch. E income & 4797 loss and

vice versa

c) Prior disallowed PAL

d) Overall gain or loss

73


• Commercial revitalization deduction (CRD)

• $25,000 applied first to active participation

• Remainder available for CRD

• Requirements:

– Buildings placed in service prior to 1/1/10

– Previous election

74


• All other passive activities

• Passive T/B activities

• Rental real estate without active

participation

• Non-real estate rental activities

• Similar to Worksheet 1

75

Other Form 8582 Worksheets

• 4: Allocation of active participation

allowance

• 5: Tracks disallowed PALs

• 6: Worksheet 5 activities if reported on

form or schedule & no transactions

• 7: Worksheet 5 activities reported on

multiple forms or schedules or separately

on the same form or schedule

76

Disclaimer

The information contained in this outline is general in nature and based on authorities that are subject to change. It is not intended, and should not be construed as, legal or tax advice provided to the reader. Readers should consult legal counsel of their own choosing to discuss how these matters may relate to their individual circumstances.

John H. Skarbnik, Esq., C.P.A., and Fairleigh Dickinson University do not make any representation or warranty, express or implied, as to the completeness or accuracy of this outline and do not assume any responsibility to update this outline based upon events subsequent to the date of its publication, such as new legislation, regulations or judicial decisions.

77

section 469 passive activity loss limitation rules for...

Documents