[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for REG.

“Death and Taxes” – Individual Tax for the CPA Exam

Posted by Another71 on Monday, November 24, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[No_one]

So, Even if question says he was materially participated we should ignore? because question also mentions “Passive losses” that's why? I know GR: that Rental activities are Passive. but it confuses with mom and pop exception that says when ur materially participating 25000/- and all that phased out rules…

So, when “Mom and Pop” exceptions kicks in?

I know I sound dumb hear, but super confused guys..Please bear me…

CA Candidate
FAR: You are down...
Aud: Surprised me...Thanks
BEC: 75% work done
REG: It's 80 but I am 100% done 🙂

[jstay]

@no_one made a good point. Take the question now think if the AGI was 125,000. would the person get half the mom and pop (12.5) AND still use the S corp of 15,000 for a total deduction of 27.5? sorry hope im not confusing anyone more

[Anonymous]

What if his AGI was under the “mom and pop” phase out. For example, let's say it was 100,000. What would the answer be then?

[Anonymous]

lol jstay you just read my mind!

[Anonymous]

but even if they materially participate it's still passive, isn't it? I researched it while ago, but it wasn't completely clear

here:

Material participation does not apply to the following activities:

Rentals are generally passive, whether or not the taxpayer materially participates. However, rental real estate interests of real estate professionals are subject to the material participation tests. See Reg. § 1.469-9(e)(1).

Working interests in oil and gas activities are excepted from the passive loss limitations. If liability is not limited, the taxpayer has a “working interest”.

Income from a partnership or S Corporation that trades in stocks, bonds or securities for the accounts of the partners or shareholders is non-passive. Income or losses, even from a limited partnership interest, may be deducted as non-passive. See Reg. § 1.469-1T(e)(6). https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG-Chapter-4-Material-Participation

[Anonymous]

I think they might want to try to confuse us with materially vs. active participation for rental.

For partnership materially participation = active participation, but not for rental. Am I right?

[Anonymous]

And we thought we knew it all…..

[jstay]

yeeeaaa i think ill be back here during june lol

[Anonymous]

Ok, I could be wrong…but this is how I understand the Mom and Pop exception. You can ALWAYS deduct your Passive activity losses up to your passive income (regardless of active participation). If you qualify for Mom and Pop exception, you can keep deducting any unused loss up to $25,000 against other forms of income. Does that make sense?

I think this is confusing all of us because every time Becker has an MCQ on it, the individual has no passive income, BUT they do apply for Mom and Pop exception, and thus can deduct passive loss. Anyone think I am totally off base? Because the more I type this out, the more I wonder.

@cpa8488, I feel good! Good enough to get a 75, at least. How are you feeling?

[Anonymous]

They didn't make it very clear in my notes, I was pissing off roger's forum moderator with questions about it. You just have to go and research every little thing for yourself

jstay, let's hope we get all the straightforward questions

[Anonymous]

I found this on another forum, and it seems to coincide with what I said (specifically the last paragraph):

GR:

(PALs) Passive Activity Losses are NON-DEDUCTIBLE loss

unless 2 exceptions :

1- ($25,000 & active) MOM & POP .

2-Real Estate Professional (not passive activity)

taxpayer may not use any of the loss attributable to his rental (passive) real estate as an offset against income from (nonpassive) or normal sources (wages , salaries , interest or dividend) in the current year because he does not qualify for the “Mom and Pop” exception.

[Anonymous]

@dpd what you said on the prior page does make sense. So you can offset PAL with passive activity income only. However, if you qualify for the “mom and pop” you can offset up to 25,000 against all other types of income?

Do you have an example in mind you can make up? lol

also, are you using only Becker or do you ninja?

[jstay]

hows everyone doing with time management? as in getting through the questions and saving time for the sims

[Anonymous]

@cpa8488, I am just using Becker.

So say an individual has $50,000 of PALs and $25,000 of rental income. He DOES actively participate/own 10% blah blah blah. The first $25,000 of that loss offsets the $25,000 of income. That leaves a $25,000 loss that he can deduct against his ordinary income because he qualifies for Mom and Pop.

The only way to make it more complicated would be if he had AGI of say $110,000. $5,000 of that $25,000 would be phased out if that were the case, leaving $20,000 remaining loss to offset other income.

Does that make sense? Anyone think this is wrong? All that being said, Becker provides no examples of this case, and I think we are getting worked up over something that tends to be straightforward in all the MCQ I have seen.

[Anonymous]

well there is only 6 SIMS so I was thinking 1.5 hours for them and 1.5 hours for the mcq. So that's about 1 minute and 30 seconds per question. First testlet, is moderate level and at the rate we have been studying we should be able to get through it fairly quickly. So I'm thinking 1 minute questions for the first testlet. So that gives us an extra 7 minutes and 20 seconds to spread over the other 2 testlets. What the hell am I even saying?? I'm just going to shutup and hope I finish the exam. lol

[Author]

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