T1-M2 Loss Limitations

Question 1

what are the 4 loss limitations (hurdle)?

Answer 1

clear these hurdles by order
1. tax basis (apply to pass-thru entity level: partnership & S corp)
2. at-risk basis (apply to pass-thru entity level: partnership & S corp)
3. passive activity loss - PAL (apply at individual income tax level)
4. excess business loss (apply at individual income tax level)

• read notes in study excel file

Question 2

what is mom-and-pop exception to PAL limitation?

Answer 2

• an individual taxpayer can deduct up to $25K of PAL if taxpayer:
  + actively participate in the RRE activity; and
  + owns at least 10% of RRE activity
• the $25K is reduced by 50% of the excess of the taxpayer’s AGI (excluding rental activity) over $100K. The $25K allowance is eliminated completely when AGI exceeds $150K

Question 3

what is a real estate professional?

Answer 3

• a real estate professional’s income is active not passive
• a real estate professional meets the following:
  + more than 50% of the taxpayer’s personal services during the year are from real estate business
  + taxpayer performs more than 750 hours of services in real estate business during the year