Tax Planning Goals

1
Tax Planning Goals

• Avoiding income recognition
• Postponing income recognition
• Changing tax jurisdictions
• Controlling classification of income
• Spreading income among related taxpayers
• When to act contrary to usual techniques

2
Deductible Losses

• Deduct only these losses
• Incurred in trade or business
• Incurred in profit-seeking activity
• Bad Debts
• Caused by casualty or theft
• Definition
• Loss Lesser of (basis or value decline), minus
  insurance proceeds
• Indivs apply 100-per-cas and 10-of-AGI floors

3
Amount of Casualty Loss
4
Property Transactions

• Amount Realized
• Adjusted Basis
• Gain/Loss Realized
• Gain/Loss Recognized

Ordinary Capital Passive
5
What Is A Tax Shelter?

• Usually a partnership or joint venture
• Often in real estate or natural resources
• Leverage
• Conversion
• Deferral

6
At-Risk Limits

• Deduct loss only to extent the investor is
  at-risk
• Disallowed loss is suspended and carried forward
  until there is an at-risk amount to offset
• At-Risk Amount does not include other peoples
  money, like nonrecourse debt, except qualified
  nonrecourse debt on real estate

7
Passive Loss Limits

• Generally, passive losses can only offset passive
  income, ie they cannot be deducted against active
  or portfolio income
• Disallowed losses are suspended and carried
  forward
• Allocate suspended loss to a specific activity
• Loss triggered when activity is disposed of

8
Passive Loss Defined

• Activity in which the taxpayer does not
  materially participate
• Most rental activities
• Most activities of a limited partner
• Apply passive loss rule after at-risk limit

9
Deductible Passive Losses

• Real Estate Professional
• Material participant, for more than half of
  personal service time
• Performs more than 750 hours
• Flat 25,000 Allowed
• Against portfolio or active income
• Phases out at upper income levels
• Applies also to passive credits

10
Disposition of Passive Activity

• Complete disposition in a taxable transaction
  Frees up all suspended losses
• Disposition at death Deductible on final tax
  return of decedent, in excess of basis step-up
• Disposition by gift Add suspended loss to
  donees basis
• Disposition by installment sale Suspended loss
  is deductible proportionately to collections