Passive Losses

Overview

This course addresses the practical aspects of Section 469 and the needed skill to handle pragmatic issues. Fundamentals are reviewed, planning opportunities identified, creative strategies discussed and evaluated along with remaining traditional approaches. The goal of this instructive program is to understand and solve problems under Section 469, with emphasis on tax savings ideas. Readers will overview the proper administration of this complex and often cumbersome provision.

Highlights

• Material Participation • Activity Definition • Passive and Non-Passive Activities • Passive Activity Loss • Passive Activity Gross Income • Passive Activity Deduction • Passive Activity Credits • Items Received from Pass-Through Entities • Interaction with Other Code Sections

Designed For

This program is appropriate for professionals at all organizational levels.

Objectives

• Specify the mechanics of the passive loss rules, recognize the impact of 469 to appropriate deductions, identify what type of income may be offset by passive losses and then, determine a passive loss. • Identify how to avoid the application of the passive loss rules through material participation, and factors under the TRA ‘86 that were considered in determining whether the taxpayer’s involvement in the operation of the activity is regular, continuous, and substantial. • Recognize the history and rationale of the definition of “activity” by: • Specifying the impact of TRA ‘86, 183, and the at-risk rules noting differences between the former complex definition and the final simplified regulations. • Identifying why it is operationally important to separate activities and how activities were originally separated under the Committee Reports. • Citing Notice 88-94’s role in determining separate activities. Determine the differences between passive activities and nonpassive activities under 469 by: a. Recognizing a “trade or business activity” and the effect of participation on that characterization. • Specifying a “rental activity” identifying conditions for a rental activity to exist and the resulting passive presumption; and c. Identifying exceptions to the general rule that rental activities are presumed passive. • Specify reasons why disallowed passive activity losses must be allocated among all the taxpayer’s activities producing a loss during the tax year, determine how to allocate disallowed passive activity losses and how it may be applied to multiple activities, identify the ratable portion of a loss and the ratable portion of a passive activity deduction under 469, and recognize significant participation activities noting how to determine loss, if any. Identify passive activity gross income by: • Determining “passive activity gross income” under 469. • Specifying income from the disposition of property used in a passive activity including mixed or alternating use property. • Recognizing the general treatment of rental activity income and gain from the disposition of appreciated property formerly used in a nonpassive activity. • Citing conditions that must be met to offset up to $25,000 per year of losses and credits related to a passive activity against nonpassive income. • Determine a “passive activity deduction,” noting how it is processed under 469, and aggregate qualified residence interest using 469(j)(7), specify passive activity deductions with other deduction limitations and identify effects the coordination rule has on the determination of passive activity deductions. • Determine “passive activity credits” and the regular tax liability allocable to passive activities, cite the $25,000 allowance according to the regulations, identify a closely held corporation’s passive activity credit net active income for the tax year and under 469, and determine how passive activity limitations apply to credits and how to allocate disallowed credits. • Identify items received from pass-through entities as passive or nonpassive according to the passive loss rules, determine a taxpayer’s participation and the application of 469 to payments to partners as outsiders and as partners, specify the tax consequences of cash payments in liquidation of a partner’s interest, and identify categories of cash payments in such a liquidation. • Recognize the application and ordering interaction of 469 with other Code sections by: • Specifying 469’s restricted application to deductions from passive activities. • Identifying whether or when net passive losses from an activity • (i) are deductible against other sources of income • (ii) reduce a taxpayer’s at-risk amount • (iii) impact attributable interest deductions • Determining how passive activity income or deduction relate to 1211. • Recognizing the impact of the husband and wife rules of 469, 704(d), 465 and 1366(d) • Identifying corporate tax provisions