Week6.Lecture.Chapter11

Week6.Lecture.Chapte - Chapter 11 Passive Losses Rules(slide 1 of 2 Require income and losses to be separated into three categories Active(wages

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Chapter 11 Passive Activity Losses
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C11 - C11 - 2 Passive Losses Rules (slide 1 of 2) Require income and losses to be separated into three categories: Active (wages, salaries, profits from business where materially participating) Portfolio (interest, dividends, annuities, gains from disposition of property not held for investment) Passive (trade/business income where TP does not materially participate OR rental income) RULE - passive losses from one activity can only be used to offset income generated by other passive activities (Disallowed losses are suspended and carried forward Suspended losses must be allocated to specific activities
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C11 - C11 - 3 At-Risk Limits (slide 1 of 3) At-risk defined The amount of a taxpayer’s economic investment in an activity Amount of cash + adjusted basis of property contributed to the activity + amounts borrowed for which taxpayer is personally liable (recourse debt) (includes amounts guaranteed by TP) At-risk amount increases by TP’s share of income and decreases by share of losses and distributions At-risk amount does not include non-recourse debt unless the activity involves real estate For real estate activities, qualified nonrecourse debt is included in determining at-risk limitation
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C11 - C11 - 4 At-Risk Limits (slide 2 of 3) At-risk limitation Can deduct losses from activity only to extent taxpayer is at-risk Any losses disallowed due to at-risk limitation are carried forward until at-risk amount is increased Previously allowed losses must be recaptured to the extent the at-risk amount is reduced below zero At-risk limitations must be computed for each activity of the taxpayer separately
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C11 - C11 - 5 At-Risk Limits (slide 3 of 3) Interaction of at-risk rules with passive loss rules At-risk limitation is applied FIRST to each activity to determine maximum amount of loss allowed for year THEN, passive loss limitation applied to ALL losses from ALL passive activities to determine actual amount of loss deductible for year
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This note was uploaded on 06/21/2010 for the course MANAGEMENT 127a taught by Professor Gadner during the Spring '08 term at UCLA.

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Week6.Lecture.Chapte - Chapter 11 Passive Losses Rules(slide 1 of 2 Require income and losses to be separated into three categories Active(wages

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