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Operation of Passive Real Estate Activity and Taxpayer Limitations
When you deal with clients/customers that are entrepreneurs and investors, you need to become somewhat more knowledgeable about tax implications than your competition. You know "if you can't razzle dazzle them with knowledge, hen baffle them with your bu.......". Then reccommed a good accountant.
The "Passive Loss Limitation Rules" inacted by Congress says that the Taxpayer must "materially participate" in a business to be elegible for tax preference benefits and incentives. The requirement is that the taxpayer must have a substantial and bona fide participation in the activities of the business.
-  Passive Loss Rules state that losses (credits) from a passive business or activity, to the extent they exceed income rom all passive acivity may not (generally) be applied against income from salaries, wages or interest and dividends. There are exceptions: 1. The real estate professional exemption (defined later), and 2. The $25,000 deduction of losses for middle income taxpayers (no corporations) from actively managed real estate.
-  Passive activity not currently deductible becomes suspended and is deductible in a subsequent year where there is passive income or the passive activity is terminated.
A taxpayer's activities must be divided into three types of acivities: Portfolio income - interest, dividends, royalties, annuities, investment income; Active Income - ... more

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