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Generally speaking, passive activities result from a business activity in which you do not materially participate. Any losses resulting from passive activities are limited to the extent of passive income. You materially participate in a trade or business activity if you meet any of the tests listed below:
Real estate activities are unique in that they are, by definition, considered to be passive activities even if you do meet the material participation test. An exception to this rule is met if you are a real estate professional. You are considered a real estate professional if you meet both of the following requirements listed below:
If you are unable to meet the material participation test and are not considered a real estate professional for real estate activity purposes, you are able to carry forward any disallowed passive activity losses to future years. You may carry forward these suspended losses indefinitely until the activity has generated income to offset the losses or the activity is disposed of. Any suspended losses that have been carried forward from prior years are fully deductible in the year of disposition if there is a “qualifying disposition,”.
If you have any questions on passive activity losses and the real estate industry, contact the real estate professionals at Schneider Downs for further information.
Read more about the current Greenbook proposals. ...
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