DESCRIPTION
This module provides an overview of the passive activity loss rules, including how to determine whether income or losses from rental and non-rental activities are classified as passive or nonpassive. The course reviews material participation and active participation concepts and explains how these rules apply across different activity types, with additional focus on the special rules for rental real estate, including the $25,000 allowance and the real estate professional requirements. Participants calculate the passive activity loss limitation using fact patterns to reinforce the rules. The module also explains the treatment of suspended passive losses upon disposition of a passive activity and concludes with a comprehensive case study integrating these concepts.
LEARNING OBJECTIVES
- Determine whether income or loss from a given activity is classified as passive or nonpassive.
- Identify the primary material participation tests used to determine whether an activity is treated as passive or nonpassive.
- Calculate the passive activity loss (PAL) limitation for an individual taxpayer using the provided fact patterns
- Explain the distinction between active participation and material participation and how each affects the treatment of losses under the passive activity loss rules.
- Summarize the statutory requirements a taxpayer must meet to qualify as a real estate professional.
- Describe the general rules governing the treatment of passive activity losses upon disposition of a passive activity.
