Antonio and Luzviminda Pungot - Page 3




                                        - 3 -                                         
          Discussion                                                                  
               Generally, individuals may not currently deduct losses from            
          passive activities, defined to include all rental activities and            
          any trade or business activity in which the taxpayer does not               
          materially participate.  See sec. 469(a), (c)(1), (2), (4).                 
          Material participation is involvement on a regular, continuous,             
          and substantial basis.  See sec. 469(h); see also sec.                      
          1.469–5T(a), Temporary Income Tax Regs., 53 Fed. Reg. 5686,                 
          5725–5726 (Feb. 25, 1988).  These passive loss rules, enacted as            
          part of the Tax Reform Act of 1986, Pub. L. 99–514, sec. 501, 100           
          Stat. 2085, 2233, prohibit affected taxpayers from using deduc-             
          tions of a passive activity to shelter wages or other active                
          income.  See Staff of Joint Comm. on Taxation, General Explana-             
          tion of the Tax Reform Act of 1986, at 209–215 (J. Comm. Print              
          1987).                                                                      
               Although all rental activities are passive, regardless of              
          the taxpayer’s level of participation, Congress created an                  
          exception for post–1993 rental activities of certain real estate            
          professionals.  See sec. 469(c)(7).2  Under this provision, a               
          rental real estate activity is not per se passive if the taxpayer           



               2Legislative relief is also available under sec. 469(i),               
          which permits a taxpayer who “actively participated” in rental              
          real estate activities to claim a maximum loss of $25,000                   
          annually.  Sec. 469(i)(1) and (2).  This exception is phased out            
          for taxpayers with modified adjusted gross incomes between                  
          $100,000 and $150,000.  See sec. 469(i)(3)(A), (E).                         





Page:  Previous  1  2  3  4  5  6  7  8  9  Next

Last modified: May 25, 2011