Passive Income Flashcards
How are losses treated in passive income?
What about in the year of disposition?
They can only be used to offset passive income.
In the year of disposition, they can be deducted against other income.
Are general partnerships passive income?
What types of partnerships are?
General partnerships typically produce a 1099, and are considered active income.
LLC’s and limited partnerships generate passive income.
What are the “At-Risk” rules regarding passive income?
You cannot deduct more than your adjusted basis. When you have deducted that amount you cannot deduct more until you’ve added to your basis.
What is basis for At Risk rules?
The capital you’ve put in + recourse debt.
How do you solve typical passive loss problems?
One common type of problem asks, ‘how much can be suspended due to passive loss rules?’ AND ‘how much can be suspended due to passive activity rules?’
These should be considered as separate computations.
What is the exception for publicly traded partnerships (aka, master limited partnerships)?
Income and loss from publicly traded partnerships cannot be netted against each other! If you have a loss in one PTP and income in another, you must pay taxes on the income and suspend the loss until such time as that specific partnership has income.
What happens in the year of disposition?
Losses on the sale of the property are capital losses.
Suspended losses can be used to offset any other income.
What is the passive loss exception for rental real estate (if self-managed)?
If the client actively participates in some management of the real estate, he can deduct $25,000 in losses against other income.
This begins to phase out at AGI = $100k; client loses $1 of loss for every $2 AGI ≥ 100K
