06/29/2023
This course provided tax advisers with an advanced guide to calculating and allocating passive activity losses. Speakers John T. Alfonsi and Thomas Castelli, CFP, CPA (Partner Hall CPA) reviewed preparing schedules for tracking loss restrictions, carryforwards, and grouping and allocating losses among multiple passive activities.
The passive activity loss limitation rules have long challenged tax advisers and compliance professionals. Recognizing whether a taxpayer’s involvement in an activity rises to the level of material participation not only confuses taxpayers and their advisers but taxpayers’ positions are frequently subject to IRS examination and challenge. Classifying an activity as active or passive is just one challenge facing tax advisers.
Once the taxpayer’s activities have been identified as being subject to passive activity loss limitations, the tax adviser must accurately report those activities on Form 8582, including supplemental worksheets and disclosures. Tax professionals must navigate available elections, ensure that the grouping of activities conforms to Treasury regulation rules, and maintain accurate suspended loss carry-forward schedules. When a taxpayer has significant real estate investments, incorrectly sorting out which losses can offset ordinary income from business activities can have costly tax consequences. The IRS continues to focus on passive income and losses since the imposition of the 3.8 percent net investment income tax.
The panel provided a comprehensive and practical guide to the mechanics of reporting passive activity loss limitations on Form 8582, using detailed illustrations and sample completed forms to offer useful tools for mastering the reporting mechanics of passive activity losses.
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