Welcome Guest. Register Now!  

LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 01-21-2011, 02:32 PM
TaxGuru's Avatar
Tax Guru
Join Date: Jan 2007
Location: New Jersey, USA
Posts: 2,413
Blog Entries: 3
How can a taxpayer convert disallowed passive losses into tax-saving deductible losses?

If a taxpayer fails the material participation tests and has passive losses that are subject to a disallowance, there are 3 potential ways available to convert the disallowed losses into tax-saving deductible losses. These are as follows;

1. Dispose of the passive activity.
The taxpayer should sell any passive activity with current or suspended passive losses through a bona fide sale to an unrelated party. The losses become fully deductible when the activity is sold, including any loss on the disposition (subject to capital loss limitations).

2. Increase your participation in loss activities.
For an activity that is generating losses, the taxpayer should increase his or her participation to meet one of the tests listed above, if possible, so that the taxpayer would not be subject to a passive loss limitation for that activity for that year.

3. Increase the hours you participate in real property trades or business.
If the taxpayer should is engaged in any real estate activities, increase your hours to meet the real estate professional test (discussed below). As a real estate professional, any real estate losses are no longer treated as passive losses, allowing the taxpayer to deduct them in full.

Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.

Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
How can a Taxpayer meet the Material Participation Rule and avoid the Passive Rule Limitation Rules being applied to activities with losses? TaxGuru Rental Real-Estate 1 08-02-2011 05:12 PM
Passive Losses - NY (Live), PA (Rent) DBozkurtian Rental Real-Estate 0 03-13-2010 11:32 AM
Deducting Passive Activity Losses workout Rental Real-Estate 1 02-07-2009 11:03 PM
What happens if you have losses in excess of your basis? Are these deductible? andri S-Corporation 1 03-23-2007 11:09 PM
Impact of net operating losses carryover when I convert to a S Corporation? Leah S-Corporation 1 01-29-2007 10:52 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 » Income
 » IRA/Sep
 » Medical
 » Payroll
Forum for CPAs
Financial Planning

» Recent Tax Q&A
No Threads to Display.