Class 3d Gains & Losses Passive Losses

Class 3d Gains & Losses Passive Losses - Taxation of...

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Unformatted text preview: Taxation of Business Entity Online Lecture Series Passive Income & Losses Including Rental Property Presented by Akore Berliner, CPA TYPES OF INCOME Require all income and losses to be separated into three categories: 1. Active 2. Portfolio 3. Passive ACTIVE INCOME Wages, salary, and other payments for services rendered Profit from trade or business activity in which taxpayer materially participates Gain from sale or disposition of assets used in an active trade or business Income from intangible property created by taxpayer Active Income is taxed at Ordinary Income Rates Active Losses may offset active, portfolio, or passive income. PORTFOLIO INCOME, GENERALLY Interest Dividends Annuities Gains/losses from disposition of assets that produce portfolio income or held for investment Portfolio Income is taxed at Ordinary or Capital Rates PASSIVE INCOME Income from trade or business activities in which taxpayer does not materially participate (i.e. work) Certain rental activities Passive Income is taxed at Ordinary Rates Passive income can be offset by: Passive Losses Active or Portfolio Losses Passive Losses are subject to limitations PASSIVE LOSS RULES • Passive losses can only offset passive income • Passive losses are also subject to the at-risk rules • Designed to prevent taxpayers from deducting losses in excess of their economic investment in an activity (see ordinary gain/loss lecture) • Generally , passive losses can only offset passive income, i.e., they cannot reduce active or portfolio income • Disallowed losses are suspended and carried forward • Suspended losses must be allocated to specific activities EXAMPLE: PASSIVE LOSS LIMITED Taxpayer has: • $80,000 wages from office job • $26,000 loss from a Passive Activity •...
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This note was uploaded on 08/11/2011 for the course ACCT 103 taught by Professor Huxhold during the Spring '11 term at San Diego.

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Class 3d Gains & Losses Passive Losses - Taxation of...

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