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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: Logain Ablar who wrote (1997)	3/18/1999 3:14:00 PM
From: OLDBISON	Read Replies (1) \| Respond to of 5810

Can you tell me how to complete Schedule D to report the premium received for writing call options in 1998 which expire in 1999? How to describe this in column (a)? How to enter the date acquired and date sold? Did I "acquire" it the date that I "wrote" the call and received the premium or was that the "date sold" in column (c)? Rex

To: Logain Ablar who wrote (1997)	3/21/1999 9:54:00 AM
From: Logain Ablar	Read Replies (1) \| Respond to of 5810

Thread: This is in response to a general question. Circumstances are: 1) Taxpayer has rental property (passive income under the code - 1986-tax act). 2) Materially participates but has experienced losses (passive activity loss); 3) has been able to realize some of the losses (25k maximum limit) due to income being under the $150k threshold (phase out starts at $100k). 4) There is a suspended loss carry forward. 5) There is a partial sale of the property. Question – Can the taxpayer defer the recognition of the suspended loss account? Answer – Yes, the taxpayer's suspended loss account will not be triggered until the entire interest is disposed of. The sale must be a partial sale, not an installment sale. [As an example the taxpayer can sell an 85% interest in a rental property in 1997 and sell the remaining interest in 1999. The suspended loss account will be recognized in 1999, the year the entire interest is disposed. Under an installment sale the entire interest would be disposed in 1997 and the suspended loss would be recognized in 1997. ] The code section governing this issue is 469. Additional information is provided below. Passive Activity Losses Losses from passive activities generally may not be deducted from other types of income, such as wages, interest, or dividends (IRC section 469). Similarly, tax credits from passive activities are generally limited to the tax allocable to those activities. In determining a taxpayer's allocable loss, the at-risk rules discussed at 4.5 are applied before the passive activity rules. Generally, to the extent that total deductions from passive activities exceed the total income from those activities for the tax year, the excess -- the passive activity loss -- is not allowed as a deduction for that year. A disallowed loss is suspended and carried forward as a deduction from the passive activity in the next succeeding year (Reg. section 1.469-1(f)(4)). Any unused suspended losses are allowed in full when the taxpayer disposes of her entire interest in the activity in a fully taxable transaction (IRC section 469(g)). Taxpayers generally use Form 8582, "Passive Activity Loss Limitations," and Form 8582-CR, "Passive Activity Credit Limitations," to calculate their allowable passive losses and credits. Personal service corporations and closely held C corporations use Form 8810, "Corporate Passive Activity Loss and Credit Limitations." Form 8825, "Rental Real Estate Income and Expenses of a Partnership or an S Corporation," is used by partnerships and S corporations to report income and deductible expenses from rental real estate activities. Passive activity defined. A passive activity is one that involves the conduct of any trade or business in which the taxpayer does not materially participate. (IRC section 469(c)) Any rental activity is a passive activity, whether or not the taxpayer materially participates. However, there are special rules for real estate rental activities and real estate professionals. Rental activities generally are considered passive activities, without regard to material participation. However, a special rule provides a deduction of up to $25,000 for losses from rental real estate activities if the taxpayer actively participates in them. (IRC section 469(c)(2) and 469(c)(4)). A loss from a passive activity is generally deductible against the net income of another passive activity. Losses that are not deductible for a particular tax year because there is insufficient passive activity income to offset them (suspended losses) are carried forward indefinitely and are allowed as deductions against passive income in subsequent years (IRC section 469(b)). Unused suspended losses are allowed in full on a fully taxable disposition of the taxpayer's entire interest in the activity. Net operating losses, passive activity losses, and tax shelter farm losses also have to be adjusted for AMT purposes.