2. Please describe \"Active Participation\" as it relates to a taxpayer\'s invol

Question

                    2. Please describe "Active Participation" as it relates to a taxpayer's involvement in an investment in Real Estate. (5 pts).                 

Chapter 8                 

                    3. Macy had a lot of medical expenses this year that were not covered by her insurance (either due to a deductible, co-insurance, or co-pay). Her un-reimbursed                    qualifying medical expenses total $8,356 and her AGI for 2013 is $45,000. Assuming she will itemize on her 2013 tax return, how much of her medical expenses                    will she be able to deduct? (5 pts)                 

                    4. Heather & Terry have a mortgage on their primary residence of $750,000 and a mortgage on their vacation home of $410,000. In 2013, they incurred $46,400                    of mortgage interest expense. How much, if any, of that interest is deductible on Schedule A? (5 pts)

Chapter 14

1. Please describe the concept of "double taxation" and discuss which entity(ies) are subject to this type of taxation. (5 pts)

2.  What type of taxpayers are considered "eligible" taxpayers with regard to special ordinary loss treatment of IRC Section 1244 stock? (5 pts.)

3.   Please describe how the treatment of capital gains(losses) differ for a C Corporation as compared to an Individual. ( 5 pts.)

4.  Please describe the concept of "Depreciation recapture". ( 5 pts.)

Explanation / Answer

1. In your "own" words, please describe what a "Suspended Loss" is, how it is generated and when it is becomes deductible.

A suspended loss is a loss, from a passive activity, that is not allowed to be used against other types of income. Such losses are generated from investments in loss generating activity, most often rental real estate. It is suspended until similar income is generated to offset it (passive income) or the activity is sold.
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Please describe "Active Participation" as it relates to a taxpayer's involvement in an investment in Real Estate.

Active participation (IRC 469 (i)(6)) related only to rental real estate and allows for a limited deduction of passive losses against other types of income. As long as the taxpayer is not a limited partner, is a greater than 10% owner, and makes management decisions, the active participation exception will allow for deduction of up to $25,000 of passive activity losses (PAL) against other income.

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Macy had a lot of medical expenses this year that were not covered by her insurance (either due to a deductible, co-insurance, or co-pay). Her un-reimbursed qualifying medical expenses total $8,356 and her AGI for 2013 is $45,000. Assuming she will itemize on her 2013 tax return, how much of her medical expenses will she be able to deduct? =

(8356-(45000*.075)=4981

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Heather & Terry have a mortgage on their primary residence of $750,000 and a mortgage on their vacation home of $410,000. In 2013, they incurred $46,400 of mortgage interest expense. How much, if any, of that interest is deductible on Schedule A?

=(NNN) NNN-NNNN=1160000*46400=40000.

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