Difference between a real estate professional, a dealer in real property and an investor in real estate for tax purposes

A real estate professional must spend more than one half his/her time on ‘real property business.’  Unless the real estate professional ‘materially participates’ in rental activity losses are passive. A real estate dealer of real property sells and buys properties on a frequent and substantial basis and usually carries an inventory of properties for sale. …

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Passive Activities and the Real Estate Professional – IRC 469(c)(7) and Reg. 1.469-9

A qualifying real estate professional may deduct rental real estate losses for each rental in which he/she materially participates provided 3 tests are passed: More than one half of the taxpayer’s personal services must be in real property business.  ‘Real property’ trade or business activity includes: development, construction, acquisition, conversion, rental, management, leasing, and brokerage. …

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Common Mistakes with Passive Activities – IRC 469 – IRS Form 8582

Not grouping related activities as one activity Treating equipment leasing as non-passive by placing the revenue from such on Schedule ‘C’ or Schedule K-1 line 3.  Rentals are passive even if the taxpayer materially participated Deduct rental real estate losses when AGI is more than $150,000.  The $25,000 Passive Activity Loss Limitation offset is phased…

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Passive Asset Disposition

There are two distinct issues to evaluate when disposing of a passive  asset: Is the disposition considered to be a qualifying disposition under reg 1.469 making the losses deductible? Is the gain on the sale truly passive income and entered on IRS form 8582 triggering deductibility of unrelated passive losses? Current and suspended losses are…

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Adoption Tax Credits including Tax Credit Carry Forwards are now FULLY REFUNDABLE in tax year 2010 According to IRS Notice 2010-66

According to Marilyn E. Brookens, an attorney in the IRS Office of Associate Chief Counsel (Income Tax and Accounting), “Effective for the 2010 tax year, the adoption tax credit is a FULLY REFUNDABLE TAX CREDIT.  The credit was made refundable by Section 10909 of the Patient Protection and Affordable Care Act.  The refundable credit is…

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Reporting 1099-C income, cancellation of debt income exclusion – IRS form 982

Debt that is forgiven is considered income for taxes purposes and is reportable to the IRS.  The debt forgiven is reported by the lender to the IRS on form 1099-C.  The debt forgiven is reported by the taxpayer as other income on Form 1040, Line 21. Taxpayers can exclude the debt forgiveness if it qualifies…

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New IRS Forms for Reporting Exercise of Stock Options

The IRS has issued two new forms for reporting stock options. Form 3921, Exercise of an Incentive Stock Option Under Section 422(b), and Form 3922, Transfer of Stock Acquired Through An Employee Stock Purchase Plan Under Section 423(c), reflect the information reporting required by the 2006 Tax Relief and Health Care Act (TRHCA). Under these…

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What happens with suspended prior year losses when a now non-passive activity generates net income?

If the current year non-passive activity triggers deductibility of prior year suspended passive activity losses, IRC 469(f) permits a prior year passive loss to offset current year income from the same activity, even though that income might be non-passive in the current year. While net income or gain on sale is non-passive, it may be…

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Grouping Passive Activities – IRS Rev Proc 2010-13

This new IRS Revenue Procedure is hugely important. Beginning in tax years after 1/24/2010 the IRS is requiring a written statement to accompany the tax return that lists how passive investment activities are grouped. The statement must include your name, address, employer ID #, and/or social security #, and it must state clearly ‘grouped activities…

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Tests for Material Participation IRC 469(h) Reg. 1.469-5T

Material participation is regular, consistent and substantial personal involvement in operations. It is required in businesses, farms, rental real estate owned by real estate professionals, most vacation rentals, hotels, motels, and B&B’s, etc.. Basically most anything reported on IRS form K-1 Line 1 for partnership or ‘S’ Corp businesses should evaluate material participation issues. For…

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