Chapter 17 with Homework

Chapter 17 with Homework - Restrictions on Deductions...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Restrictions on Deductions Chapter 17 At Risk Limitations - §465 Hobby Losses - §183 Home Deductions - §280A Passive Activity Losses - §469 Illegal Activities
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Restrictions on Deductions Restrictions generally come in two forms: Denial – permanently disallow deductions (§280A) Deferral – requires waiting until some future time or event to offset the deductions against income (§465, 469)
Background image of page 2
At Risk Deferral - §465 Generally, this section limits the amount of deductions you can take to the amount you have invested. Note this does NOT mean your basis. Basis includes non-recourse liabilities, while at risk amount does NOT.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
At Risk Deferral - §465 Section applies to individuals and closely held C corporations who are involved in an active trade or business or pursuit of profit. Does not apply to partnerships and S corporations as entities, but instead applies to their owners. Attributes the activities of the entities to the owners.
Background image of page 4
At Risk Deferral - §465 This is a “cumulative” section, not an annual test. Once your losses exceed your “at risk basis” you can no longer deduct your losses. If your amount at risk goes up (i.e. you invest more money or have a profitable year), you can deduct carryover losses. Losses do not disappear, just are deferred.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
At Risk Deferral - §465 Real Estate gets a special exemption that allows you to include non-recourse debt in your “at risk basis” amount. Loan must be from one of the following to count: Government Guarantee from the government A third party who is regularly in the business of lending money.
Background image of page 6
Hobby Losses - §183 Also know as “activities not engaged in for profit” These rules act to prevent you from deducting your excess expenses over your hobby income. A permanent disallowance section.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Hobby Losses - §183 What is a hobby? IRS created a rebuttable presumption that if you do not make a profit in at least 3 years of a 5 consecutive year period, then the activity is not engaged in for profit and is therefore a hobby. Rules for horse businesses are 2 years out of 7.
Background image of page 8
Hobby Losses - §183 What is a rebuttable presumption? Means that through objective facts and circumstances, you can prove that even though you lost money for more than 2 of the years, you truly are engaged in an active trade or business or profit seeking activity. Thus your losses should be allowed (subject to the passive and at risk rules)
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Hobby Losses - §183 IRS and taxpayers can use a list of roughly 8 main items to determine whether an activity is engaged in for profit: Is there a written business plan? Use of outside experts Maintain complete and accurate books and records Devote a significant amount of time to the business Realize significant appreciation on the assets Significant investments in the business Limited elements of personal pleasure Expertise in the business
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/27/2008 for the course BUS 1000 taught by Professor Professor during the Spring '08 term at Cal Poly.

Page1 / 55

Chapter 17 with Homework - Restrictions on Deductions...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online