Discussion:$25,000 PAL real est offset & bankruptcy
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Discussion Forum Index --> Advanced Tax Questions --> $25,000 PAL real est offset & bankruptcy
Discussion Forum Index --> Tax Questions --> $25,000 PAL real est offset & bankruptcy
| 22 June 2009 | |
| Client filed bankruptcy and discharged residential rental real estate activities with significant suspended PAL's from prior years.
My research indicates the current year profit (up to the time of bankruptcy) can be offset by the suspended PAL's. (Sec 108(b)(4)(A) indicates that attribute reduction - by the bankruptcy estate - does not occur until after the tax liability for the year of discharge has been determined.) However, the transfer to the bankruptcy estate is a "transfer" and not a "disposition." Hence, the remainder of the suspended PALs transfer to the bankruptcy estate. Since the transfer of the remaining PALs occurs "after" the tax liability has been determined, then there remains enough for the $25,000 offset. However, active participation is required for the $25K offset. Code Section 469(i)(6)(A) states, "An individual shall not be treated as actively participating with respect to any interest...for any period if, at any time during such period, such interest is less than 10 percent (by value) of all interests in such activity." The taxpayer filed in July, was discharged in November. What do you think about the transfer - does it "end" the activity so that the $25K can be of benefit. Or does the time in December count, meaning client flunks the 10% test? Been researching this for a while (Kleinrock, Code, Regs and forums) to no avail. Thanks all - let me know what you think. | |
| 23 June 2009 | |
| The losses are simply not available to the debtor. See Reg ยง 1.1398-1(c). | |
