Income Tax Passive Activity Rules

Front 1

Briefly discuss passive activity loss rules

Back 1

Passive losses may only be deducted against passive income. In addition an oil and gas activity that involves a working interest in any oil and gas property a tp owns directly or through a general partnership is not a passive activity

Front 2

Explain passive losses and partnerships?

Back 2

Losses from an MLP that are disallowed may be carried forward a against the same MLP. They cannot be used to offset income from a nonpublicly traded partnership.
Losses from nonpublicly traded limited partnership (typically RELP) may only be used to offset income from another nonpublicly traded limited partnership. RELLP loss can be used to offset inform from a PIG (passive income generator)

Front 3

Explain the disposition of passive losses by gift

Back 3

Disposition of a passive activity by gift does not trigger recognition of suspended losses Instead, the basis of the transferred interest is increased by the amount of the loss.

Front 4

How much recourse debt can a limited partner have

Back 4

no more than the limited partner's capital contribution and future contribution obligations unless there is an agreement with the partnership to the contrary

Front 5

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

Back 5

Any loss in excess of the netting against passive income is then reclassified as nonpassive and must be used to offset ordinary income. If it is a related party transaction, the loss may only be claimed when the related party disposes of the activity with an unrelated person. Abandonment is considered a fully taxable transaction.

Front 6

Passive actvity loss rules do not apply to which type of entity>

Back 6

C corporations that are NOT closely held. Does apply to closely held C corporations. Closely held corporations may offset passive losses against active income but not portfolio income.

Front 7

Do passive activity rules apply to PSCs personal service corporations

Back 7

It is limited to amount of passive income

Front 8

When is an oil and gas activity not a passive activity

Back 8

when there is a working interest in any oil and gas property that a tp owns directly or through general partnership (as opposed to royalties). An oil and gas activity that does not limit the tps liability is not a passive activity

Front 9

How do passive activity loss rules affect limited partnerships

Back 9

Losses from a nonpublicly traded limited partnership (or real estate limited partnerships) because such such partnerships may only be used to offset income from another nonpublicly traded limited partnership.. / use a PIG, passive income generator).

Front 10

How are losses from public traded partnerships (MLPs or master limited partnerships treated

Back 10

Can only be used to offset income from that SAME publicly traded partnership

Front 11

What is the passive activity rule exceptions for real estate professionals

Back 11

Losses are not considered passive if real estate is greater than 50% of their personal services and the tp performs greater than 750 hours of service in real property trades

Front 12

What is the passive activity rule exceptions for non real estate professionals

Back 12

Individuals can deduct up to $25K in losses against active portfolio income. This is reduced by 50% of a MODIFIED AGI in excess of $100K

Front 13

How does disposition by gift affect suspended passive activity losses

Back 13

Disposition by gift does not trigger recognition of any suspended losses. Instead the basis of the transferred interest is increased by the amount of such losses

Front 14

How do exchanges in a passive activity affect suspended passive activity losses

Back 14

It does not trigger suspended losses. The gain is treated as passive income against which passive losses may be deducted to the extent that any boot (taxable gain) is received in such transaction

Front 15

How does TPs death affect suspended passive activity losses

Back 15

They are deductible on TPs final tax return subject to two rules: 1)If basis receives a step up to FMV, the suspended losses are reduced by the amount of the increase to FMV;j and 2) If the basis receives a step down to FMV, then the full amount of suspended losse is deductible on the decedent;s final income tax return