Lesson 9 (Ch. 14 & 15)

Question 1

What is material participation?

Answer 1

Involvement in the operations of the activity on a regular, continuous, and substantial basis. Mere management approval does not qualify as material participation.

Question 2

Material Activity Tests

Answer 2

1. More than 500 hours
2. More than 100 hours, but no less than anyone else
3. Taxpayer is the only person substantially participating
4. More than 100 hours in several activities and more than 500 hours in total
5. Materially participated in 5 of last 10 years
6. Materially participated in a personal service activity for at least 3 years
7. Fast and circumstances indicate regular, continuous and subtantial activity

Question 3

What happens with excess losses from passive income?

Answer 3

They are suspended above the passive activity loss limit, but can be carried forward indefinitly

Question 4

How to accelerate passive income losses?

Answer 4

Passive income losses can be accelerated by disposing of the activity generating the loss. The loss can then be recognized in full the year you sold the asset/activity

Question 5

Rental Activity Exceptions (counted as ordinary income)

Answer 5

1. Customer use is less than or equal to 7 days
2. Customer use less than or equal to 30 days and personal services provided.
3. Extraordinary personal services are provided
4. Rental activities incidental to nonrental activity
5. Rental activity available during business hours for nonexclusive use of customers
6. Rental property used in activity conducted by partnership, etc. where taxpayer is owner and active participant