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Section 469 Passive Activity Rules: Loss Limitations, Ordering Rules, and Utilizing Losses

Substantiating Material Participation, Calculating Carryforwards, Reporting Dispositions, Qualifying as a Real Estate Professional

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, December 11, 2024

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers with a thorough and practical guide to navigating Section 469, the passive activity loss (PAL) limitation rules, calculating PAL amounts, and PAL carryforwards. The panel will discuss the separate calculations required and describe the interrelationship between the at risk rules and the PAL regulations, with a particular focus on real estate activities.

Description

Since their adoption, the PAL limitations rules have challenged and frustrated tax advisers. Taxpayers generally may not use losses from activities in which they are passive investors to offset ordinary income earned in an active trade or business. Whether a taxpayer's involvement in an activity rises to the level of active participation is frequently subject to IRS examination and challenge.

Treatment of losses generated from the rental of real property is particularly complicated. The regulations specifically include rental real estate within the definition of passive activities. However, numerous provisions provide both allowances for threshold loss amounts and differing standards regarding the level of involvement and activity required of taxpayers to utilize losses from rental activities.

Tax advisers must navigate the lengthy and challenging guidance on PALs to avoid expensive mistakes. When the taxpayer has significant real estate investments, incorrectly sorting out which losses can offset ordinary and business income can have costly tax consequences. The IRS continues to focus on passive income and losses since the imposition of the 3.8 percent net investment income tax.

Listen as our expert panel provides a thorough and practical guide to understanding the PAL rules, calculating what income and loss must be classified as passive, calculating PAL carryforwards, reporting PAL limitations on Form 8582, and identifying planning opportunities and elections to minimize the impact of PAL limitations.

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Outline

  1. Passive activity rules of IRC Section 469 and regulations
  2. Material participation rules
  3. Real estate professional standards
  4. 199A considerations
  5. Form 8582
  6. Disposition of passive activity investments
  7. Impact of Section 461(l) excess business losses

Benefits

The panel will discuss these and other important topics:

  • Activities vs. material participation and why it matters
  • Active vs. passive distinctions in real estate activities
  • Material participation test
  • Real estate active participation test
  • Substantiating material participation under the tests

Faculty

Barnett, Robert
Robert S. Barnett, JD, MS (Taxation), CPA
Partner
Capell Barnett Matalon & Schoenfeld

Mr. Barnett’s practice is highly concentrated in the areas of taxation, trusts, estates, corporate and...  |  Read More

Castelli, Thomas
Thomas Castelli, CFP, CPA
Partner
Hall CPA

Mr. Castelli's areas of focus are tax planning

 |  Read More

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