Passive Activity/ Tax Special Circumstances Flashcards
Passive Activity
tax payer does not materially participate
limits on passive activity losses
RELP
S-CORP unearned income
2 Types:
- Rentals (real estate and equipment), royalties
- Business - no material participation
- limited partnerships
- partnerships, s-corps, LLC
NO oil and gas LP
Real Estate Limited Partnerships
RELP
Non-Publicly traded partnership
PAL losses can only offset PIG (Passive Income Generators)
Netting done on schedule E
Master Limited Partnerships
Publically Traded Partnerships
Income from PTP may not be sheltered by passive losses from any other source
Income is same like div income shown on schedule B
Losses many not be used to offset passive income from same source
losses can be carried forward and used against income of same partnership.
Treatment of disallowed losses
Carried forward until taxpayer can dispose of
No $3000 like cap gains
Disposition of Passive Activities
Investor disposes of entire interest in a passive activity in a taxable transaction (sale) any SUSPENDED losses with respect to interest are fully deductible in the year of disposition.
Partnership can be sold for a loss
Can buy a non publicly traded partnership that makes income PIG
Phantom Income
Tax shelter prior to 1986.
Limited partnership restructuring no cash flow
Zero coupon bonds
S-corps K-1 w no check
$25,000 loss
qualifying taxpayers may deduct $25000 (not over) of net losses from real-estate activity
Phaseout $110k-$150k
can offset active portfolio income
Renting Primary Residence
Less than 15 days during taxable year - not included in gross income
Renting Vacation Home
Treated as a residence if owners use for personal purposes exceeds longer of 14 days or 10%period of rental use
Low Income Housing
passive activity may generate $25000 deduction equivalent- tax credit $25000 no phaseout
multiply tax bracket by $25000 That is the credit!
Allowed annually over a 10 year credit period (not 27 1/2yr straight line)
Historical Rehabilitation 25% phased out AGI $200000
Oil and Gas working Interests
- Exempt from PAL rules
- Losses for GP are deductible active or passive portfolio income without limit and without respect to AGI
- Form of ownership may NOT limit personal liability
-LP no losses taken - becomes a passive loss
% depletion can trigger AMT
Cost depletion is NOT and AMT preference item
Widow
In year of death can file -MFJ
Maintains a home for dependent child - MFJ in the year of death and 2 years following death
Dependency Exemptions
< 24 at the end of the year and full time student
< 19 end of the year - no student
Community Property
If Separate returns are filed by married couple - 1/2 income reported on each
WI, ID, LA, TX - separate property is community income 1/2 reported to each spouse
Alimony/ Divorce
deductible by payor taxable to payee can't file jt return or live together payments in cash must be for benefit of spouse can't extend beyond death of recipient spouse
Cash payments made to third parties for obligation of payee spouse can be alimony if pursuant to a divorce decree
Payments to maintain property of payor spouse that payee uses is NOT alimony
Payee owns life ins on life of payor- policy payments qualify as alimony -divorce decree