Passive Activity Losses (PAL): Comprehensive

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Overview

8.0 Credits
ONLINE

Passive activity loss (PAL) rules have never been more important in federal tax reporting. This course provides a comprehensive and complete review of the laws and regulations impacting PALs including the rules governing rental real estate, grouping and the 3.8% net investment income tax. The IRS is actively auditing the failure to properly report passive losses, you and your clients can’t afford to be left behind.

Objectives

  • Identify activities subject to the PAL rules and the exceptions to them, including those for certain real estate professionals.
  • Define a passive activity, rental and trade or business under IRC Sec. 469.
  • Outline seven ways to materially participate in an activity and six exceptions to the definition of a rental activity.
  • Calculate the passive activity income and losses allowed and the tax ramifications of passive activity dispositions.
  • Recognize what passive activity investments are potentially subject to the 3.8% net investment income tax under IRC Sec. 1411.

Major Topics

  • How the PAL rules apply to rental real estate activities and investments in S corporations and partnerships.
  • Definition of an activity and the activity grouping and disclosure rules.
  • Real estate professional exception to the PAL rules for investments in non-passive rentals.
  • Special $25,000 loss allowance for rental real estate with active participation.
  • Material participation safe harbor rules.
  • Events that trigger suspended PALs.
  • Limitations on tax credits generated by passive activities.
  • Special rules that re-characterize passive income to non-passive income.

Designed For

Tax professionals.

Prerequisite

General knowledge of individual/business income taxation and how they relate to passive activity laws.

Advanced Preparation

None.