Passive losses deductionsuspended losses none of the

This preview shows page 12 - 14 out of 18 pages.

Passive Losses: Deduction—Suspended Losses None of the suspended losses are deductible, but Willard will have an increased basis of $65,000: 40. Donor's adjusted basis $25,000Suspended losses 40,000Donee's basis $65,000The donee’s basis is determined by adding the suspended losses to the donor’s adjusted basis in the activity. Passive Losses: Real Estate Rental Activities Teri’s AGI would equal $53,000, computed as follows: 41. Flower Shop (not passive activity) $45,000Dividends from IBM stock 12,000Interest from AT&T bonds 14,000Total Income $71,000Less: Rental property loss ( 18,000)Adjusted Gross Income $53,000Up to $25,000 a year in losses from a rental activity in which the taxpayer actively participates may be used to offset nonpassive income. The hair salon and the laundry are passive activities because Teri did not materially participate in either of them. No deduction for either is allowed against nonpassive income. Passive Losses: Material Participation AZ Airlines is the only activity in which Basemore materially participated because he participated over 500 42. hours. All other activities are passive activities. He did not, however, materially participate in Ven-Tale, Sadd Books, and Kingdom Autos because their combined total is exactly 500 hours (not more than 500). (MovERent is not an activity in which Basemore significantly participated because his participation in this activity did not exceed 100 hours.) Passive Losses: Rental and Nonrental Operations Because rental and nonrental operations are conducted at the same location and one class of operation 43. (medical) “predominates” over the other, the predominant operation will determine the nature of the undertaking. Accordingly, both operations should be treated as a single undertaking and Dr. Hoplin’s adjusted gross income will be $113,000. If this analysis should fail, then the $25,000 rental real estate loss deduction could be utilized allowing Dr. Hoplin a $12,000 deduction ($12,500 maximum deduction with a modified AGI of $125,000).
125Instructor’s Manual©2010 CCH. All Rights Reserved. Chapter 7Passive Losses: Rental Activities Mr. Eichoff’s adjusted gross income is $109,500, computed as follows: 44. AGI before passive losses $122,000Vacation home loss ( 12,500)Partnership loss 0Adjusted Gross Income $109,500Passive Losses: Material Participation—Suspended Losses Ms. Parker did not materially participate in the movie theater for 2006, 2007, 2008, and 2009, but she did 45. materially participate in 2010. During these four years of operations, the activity experienced a $58,000 loss, which was entirely suspended:YearLossPhaseout %DeductionLossSuspended2006 $21,0000$0$21,0002007 6,000006,0002008 19,0000019,0002009 12,0000012,000Total Losses Suspended $58,000Therefore, $24,000 of suspended losses will offset the $24,000 net income from the theater, and the balance ($34,000) will be available to offset future net income from the theater and from other activities that are passive. Portfolio income cannot be offset by the suspended loss.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture