Passive activity losses (PALs) can generally only offset passive activity income, not employment income, unless the taxpayer is a real estate professional. One married couple had income from his job as an engineer, and PALs from her managing their rental properties. They claimed the PALs against his employment income and submitted time logs to show she materially participated in the rental activities. The IRS found her time logged fell short of the 750-hour threshold to qualify as a real estate pro and denied the PALs. The Tax Court agreed.
Year-end tax planning can ease the tax bite of capital gains and losses. While many people have made money on the stock market this year, there are others who’ve recognized losses on securities. The right year-end tax planning strategy for an individual’s capital gains and losses will depend on a series of factors, including the amount of regular taxable income, the tax rate that applies to the individual’s “adjusted net capital gain,” whether recognized capital gains are long- or short-term, and whether there are unrealized capital losses. Contact us for details.