Passive activity and at risk rules

Question 1

Which rule is applied first the at risk rules or the passive activity loss rules?

Answer 1

The at risk rules

Question 2

What are the At risk rules?

Answer 2

Maximum deductible loss for any investment activity is limited to the amount that the investor has at risk (invested) at the end of the current tax year

Apply to all investment activities

Can never lose more than the amount of investment at risk

Investment amount is also called the basis in the activity

Question 3

What makes up the total amount that is at risk?

Answer 3

Total of the cash and property invested and any debt for which the investor is personally liable is adjusted annually

Question 4

What happens if a loss is disallow because of at risk rules

Answer 4

The loss is a suspended loss that can be carried forward and taken in the first year the at risk amount becomes a positive amount.

Question 5

What happens when a passive activity interest is disposed of in a taxable transaction

Answer 5

Net passive loss first must be applied against income or gain from any other passive activities of the taxpayer

Any loss in access of the netting against passive income or gain is then reclassified as a non-passive maybe used to offset ordinary, non-passive income, such as wages and interest income

Related party transactions , lost may only be claimed when they related party, dispose of the activity and with an unrelated person

Question 6

Example of at risk rules

Answer 6

Question 7

Passive losses may only be deducted against what, with one exception

Answer 7

Passive income with the one exception for real estate activities

Question 8

Must classify passive activity losses into what

Answer 8

Losses into active, passive, or portfolio

Question 9

Are oil and gas activities that involve a working, not royalty, interest in any oil and gas property that a taxpayer own directly or through a general partnership, a passive activity

Answer 9

No

Question 10

What are the two types of limited partnerships for passive activity rules?

Answer 10

Publicly traded partnerships (PTP)

Non-publicly traded or private offered limited partnerships

Question 11

How are losses from a passive limited partnership treated?

Answer 11

Losses from a non-publicly traded limited partnership or real estate limited partnerships, may only be used to offset income from another non-publicly traded limited partnership

Question 12

when a loss occurs in more than than one passive activity and there is also passive income. How are the losses treated?

Answer 12

They are allocated to the passive activities based on the percentage of the loss of the total amount of net losses

Question 13

What conditions create a passive activity

Answer 13

Taxpayer does not materially participate

Activity is a rental activity

Question 14

If a taxpayer answers, yes to any of the following questions, then the activity is not a passive activity

Answer 14

Complete more than 500 hours of participation during the year

Individuals participation in the activity constitutes substantially all the participation in the activity of all the individuals for the year

Participate for more than 100 hours amount equal to or more than any other participant in the activity

Activity, significant participation, activity, and significant participation in all such activities exceeds 500 hours

Taxpayer material participates in the activity and at least five of the last 10 years

Is the activity, personal service activity and the taxpayer materially participate in the activity in any three previous years?

Using the existing fax and circumstances to the taxpayer participate on a regular continuous and substantial basis during the year 100 hours per year minimum

Question 15

Limited partners are not material participants because they are not allowed to participate in the management of the business and are therefore limited partnership interest. Does this make it a passive activity

Answer 15

Yes

Question 16

Are all rental activities deemed passive

Answer 16

Yes, unless accepted by the code

Question 17

An activity is not considered a rental under any of the following six conditions

Answer 17

Average customer use is seven days or less

Average customer use is more than seven days but not over 30 days and owner provides significant personal services

Owner also provides extraordinary services

Rental activity is incidental to a non-rental activity of taxpayer , investment and trader business

Property is made available during business hours for non-exclusive use by customers example golf course

Property is used in a non-rental activity conducted by partnership , S corporation, Or joint venture, where the owner has an interest

Question 18

If real estate is your trade or business losses are not considered passive for certain real estate professionals provided that what

Answer 18

Real estate activities are greater than 50% of their personal services in all trades or businesses for the year and

Taxpayer performs greater than 750 hours of service in real property trades or businesses in which the taxpayer materially participates

Question 19

Real estate rental activities for non-real estate professionals can deduct up to how much and what is the phase out

Answer 19

$25,000 of rental real estate losses against active and portfolio income

$25,000 offset allowances reduced by 50% of AGI in excess of $100,000 with a complete phase out at $150,000 of AGI applies to single and married

Question 20

For non-real estate professionals to qualify for the $25,000 rental real estate loss deduction what two test must be meant to qualify for this exemption

Answer 20

Active participation in the activity

Ownership of 10% or more of all interest in the activity during the taxable year