Loss Limitations for Individuals Flashcards
The tax basis and at-risk basis limitations apply at the ______ level while the passive activity loss and excess business loss limitations apply at the ______ level
entity and individual
How is a loss in excess of the owner’s tax basis treated?
It is suspended until tax basis is reinstated in future years and carried forward indefinitely (any suspended losses remaining when the owner disposes of their interest is lost)
How is a loss in excess of the owner’s at-risk basis treated?
It is suspended until tax basis is reinstated in future years and carried forward indefinitely (any suspended losses remaining when the owner disposes of their interest can be offset against any gain from selling the interest)
What are the 3 categories of income?
Active, Passive, Portfolio
How is a net passive activity loss (PAL) at the end of the year treated?
It is suspended and carried forward indefinitely to offset future passive activity income (any suspended PALs remaining when the owner disposes of the activity can be offset against active, passive, or portfolio income…this goes for current year PAL and suspended PAL)
Mom & Pop Rule
An individual taxpayer may deduct up to $25k of net PAL attributable to rental real estate if they actively participate and own at least 10% of the rental real estate
Mom & Pop Rule Limitation
The $25k allowance is reduced by 50% of the excess of the taxpayer’s AGI over $100k (allowance is completely eliminated when AGI exceeds $150k)
How much of a capital loss can be recognized in a given year?
$3,000 is the max deduction recognized; if a taxpayer has both net short-term and net long-term capital losses, the net short-term losses are deducted first
Capital losses are limited to…
taxable income
If you have an excess net capital loss, you can…
carry it forward for an unlimited time until it’s exhausted (it maintains its character as short-term or long-term in future years)
