Passive Losses

Upon successful completion of this course, participants will be able to:

Chapter 1

• Recognize the tax impact of the §469 limitation provision, determine categories of income and loss income and loss into categories, and list Congressional reasons for its passage.
• Specify the aggregate mechanics of the passive loss rules, identify what type of losses remain unaffected, and recognize passive and nonpassive (including portfolio) income sources.
• Identify ways to ultimately “free up” passive losses, specify the treatment of passive credits on disposition, and determine limitations on related party transactions.
• Determine the allowance of suspended losses upon nonrecognition transactions, specify the order of recognized tax attributes upon position, and recognize the allocation of losses from multiple passive activities.
• Identify which taxpayers are or are not subject to the passive loss rules, specify the full-time real estate professional exception, and recall the original §469 phase-in provisions.

Chapter 2

• Identify how to avoid the application of the passive loss rules through material participation, specify tests provided by the initial regulations on material participation and how these tests provide useful §469 categories, determine how to keep appropriate records of participation, identify exceptions to what counts toward material participation, and determine annual material participation.
• Recognize special applications of the material participation rule by recalling its application to trusts, estates, and affiliated group members.

Chapter 3

• Recognize the history and rationale of the definition of “activity” by specifying the use of analogies under §183 and §465, specify the original activity undertaking rules, and recognize the passage of final simplified activity regulations.
• Determine whether two or more trade or business undertakings could be a single integrated business. recognize the importance of the passive activity audit guide as a tool to avoid audits by specifying potential audit issues that the passive activity audit guide addresses.

Chapter 4

• Determine a “rental activity” identifying conditions for a rental activity to exist and the resulting passive presumption.
• Recognize exceptions to passive activity status and their tax effect and specify the tax treatment of when activities are “nested” in each other.

Chapter 5

• Determine what constitutes a “passive activity loss,” identify the appropriate passive loss tax treatment of spouses, and recognize an affiliated group’s passive activity loss using group member items.
• Specify reasons why disallowed passive activity losses must be allocated among all the taxpayer’s activities and determine how to allocate and carry over disallowed passive activity losses.

Chapter 6

• Identify passive activity gross income under §469 and specify income from the disposition of property in mixed use, recognize the $25,000 allowance passive loss exception and the potential of a net operating loss, and identify the presumed tax treatment of net leases under §469.
• Recognize the dangers of self-charged interest and what measures can be taken to avoid this item’s passive nature and determine a “publicly traded partnership” for taxation purposes and how net income from such entities is portfolio income.
• Determine tax attributes and subsequent events that can cause a recalculation of gross passive income and recognize the recharacterization rules identifying whether certain transactions will be recharacterized based on the 12-month and 30% tests.

Chapter 7

• Determine the source of passive losses and the exclusion of qualified residence interest under §469(j)(7) and specify the coordination of passive activity deductions with other deduction limitations.
• Recognize how to account for losses on disposition according to Reg. §1.469-2T(d)(5), cite instances that require such a loss to be allocated, and determine a negative §481 adjustment.

Chapter 8

• Determine “passive activity credits” and their usage under§ 469 and identify a closely held corporation’s passive activity credit net active income for the tax year.
• Specify circumstances where separate identification of credits is required and the order of credit limitations.

Chapter 9

• Identify the tax character of items received from pass-through entities as passive or nonpassive and determine a taxpayer’s entity participation.
• Recognize items and events that uniquely adjust or allocate passive losses for pass-through entities and their owners by determining gain or loss from a sale or exchange of an interest.

Chapter 10

• Recognize the application and ordering interaction of §469 with other Code sections by determining how passive activity income or deduction relate to §465 and §1211.