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:: Passive Activity Loss ATG - Exhibit 2.4: Real Estate Professionals
Exhibit
2.4: Real Estate Professionals
LAW:
Under IRC § 469(c)(7) & Reg.
1.469-9, if the taxpayer spends
the majority of his time in real
property businesses, meeting the
1/2 personal services and
750-hour tests, rental real
estate losses are no longer per
se passive. If the taxpayer
materially participates in each
rental real estate activity,
losses are fully deductible. If
not, even though the taxpayer is
a real estate professional,
losses are passive and
deductible only up to $25,000
(if MAGI is less than
$100,000). The IRC § 469(c)(7)
does not trigger carryover
losses from prior years.
_____ Verify
that one spouse alone meets BOTH
of the following tests.
FIRST TEST:
Are more than half of personal
services in all businesses (T/B)
for the year performed in real
property T/B and rental real
estate?
--Real property
T/B = real property development,
construction, acquisition,
conversion, rental operation,
management, leasing or
brokerage. Time spent as an
employee in real property
activities counts only if the
taxpayer is more than a 5
percent owner.
SECOND TEST:
Does taxpayer spend more than
750 hours in real property
businesses and rentals in which
he materially participates?
_____ If
answer is NO to either of above
two tests, IRC § 469(c)(7) does
not apply, and losses are
generally limited to
$25,000.
_____ If
answer is YES to both tests,
apply material participation
tests to each rental real
estate activity to determine
whether each activity is passive
or non-passive. While not seen
often, the taxpayer may have
made a one-time election to
group all rentals as a single
activity. Thus material
participation is determined
based on the grouped rentals.
See IRC § 469(c)(7)(A) and Reg.
§ 1.469-9(g).
CONCLUSION:
-
Per IRC §
469(c)(7), the following
rental real estate
activities have been
determined to be non-passive
and current (but not
carryover) losses are fully
deductible: ______________
Current losses are entered
on Schedule E, but not on
FORM 8582.
-
Taxpayer is
a real estate professional,
but did not materially
participate in the following
real estate activities:
_____________ He does,
however, actively
participate, making
management decisions.
Losses are entered on FORM
8582 line 1a.
-
Taxpayer
does not actively
participate in the following
rental real estate
activities: ______________.
Limited partners and
Taxpayers who own less than
10 percent cannot rise to
the active participation
standard. Losses are
entered on FORM 8582, line
3b (2b for years before
Passive Activity Loss ATG - Exhibit 2.4: Real Estate Professionalsiv>
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