For example, if a member makes a loan to an LLC for use in a passive activity
, the result is interest income to the lending owner and some allocation of LLC-level interest expense to the same member.
The Tax Court recently held that a mortgage broker was not a real estate professional and therefore was subject to the passive activity
loss rules of Sec.
Before you make any decisions, though, you should be aware of the tax implications, especially the passive activity
Fort Myers, FL, July 09, 2014 --(PR.com)-- Finally a solution to investors that have been carrying suspended Passive Activity
Losses (PALs) on their tax return (Form 8582) every year.
Under IRC [section] 1411, net investment income includes income derived in the ordinary course of a successful, operating business if that business activity is considered a "passive activity
" of the individual income recipient.
Net investment income (NII) is broadly defined to include the sum of 1) investment-related gross income, such as interest, dividends, rent, royalties, and annuities, other than such amounts derived in the ordinary course of a trade or business (but excluding amounts derived from a financial instruments or commodities trading business (trading business) or a business that is a "passive activity
" with respect to the taxpayer (passive activity
business)); 2) other gross income derived from a trading business or a passive activity
business; and 3) net gain attributable to the disposition of property other than property held in a trade or business other than a trading business or passive activity
Definition of Passive Activity
and Passive Activity
Generally, the passive activity
provisions only have relevance when the taxpayer has a loss from one or more passive activities.
A closely held C corporation (other than a personal service corporation) can deduct its passive activity
losses against its net active income (other than its investment, or "portfolio," income) and its passive credits can be applied against its tax liability attributable to its net active income.
If a taxpayer's loss passes the basis and at-risk limitation tests, the passive activity
rules are applied.
* Passive activity
loss rules regarding rental real estate;
Unlike hearing, which is a physiological passive activity
, listening is an active cognitive process.