Discussion:Election to Combine all Real Estate Activity
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| {{ForumReplyPost|UserID=LJACPA|Date=8 April 2009|Text=Yes, I've read and read this but did miss (g)(1)(c) where it states that failure to make one year, etc. I do understand the part about not electing due to existing PALs, but as I mentioned these were only PIS in 2007 and 2008 so the losses in 2007 were taken as a RE pro and therefore not passive and not limited. I'm concerned about 2007 because no election was made and the 750 hour (or as Riley states above - at least 100 hours per activity, though I think they'd still come close) requirment. The part you mentioned about the PALs getting 'stuck' until all properties are disposed of confuses me, though I was aware of this. If we qualify as RE pro and therefore the losses aren't PAL and are taken in full each year, how does this fit in? With nearly $90,000 in losses on the properties that could qualify as RE pro, I'd rather determine if they do qualify then to have PALs limited to $25,000. I hope this make some sense.}} | {{ForumReplyPost|UserID=LJACPA|Date=8 April 2009|Text=Yes, I've read and read this but did miss (g)(1)(c) where it states that failure to make one year, etc. I do understand the part about not electing due to existing PALs, but as I mentioned these were only PIS in 2007 and 2008 so the losses in 2007 were taken as a RE pro and therefore not passive and not limited. I'm concerned about 2007 because no election was made and the 750 hour (or as Riley states above - at least 100 hours per activity, though I think they'd still come close) requirment. The part you mentioned about the PALs getting 'stuck' until all properties are disposed of confuses me, though I was aware of this. If we qualify as RE pro and therefore the losses aren't PAL and are taken in full each year, how does this fit in? With nearly $90,000 in losses on the properties that could qualify as RE pro, I'd rather determine if they do qualify then to have PALs limited to $25,000. I hope this make some sense.}} | ||
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| + | {{ForumReplyPost|UserID=JAD|Date=8 April 2009|Text=The one issue that bothers me with this election, which was discussed without resolution on another thread, is this: if the taxpayer makes the election, has he also grouped his activities under 1.469-4? If the election essentially means that the activities are grouped as one in years when he is not a real estate professional, then that is an important fact when making this decision. }} | ||
Revision as of 16:30, 8 April 2009
Discussion Forum Index --> Tax Questions --> Election to Combine all Real Estate Activity
| 2 September 2006 | |
| Is there ever a reason not to make the election to combine and consider all real estate as one activity? Also, my understanding is election needs only to be made once in your life. Do you suggest doing this eletion yearly? | |
| 3 September 2006 | |
| This is a one time election by attaching statement to tax return in the year in which the taxpayer qualifies to do so - namely, the tests for a real estate pro are met Sec. 469(c)(7)(B). It can be revoked by written statement attached to the tax return in the year that the facts and circumstances dictate. Reg. 1.469-9(g). | |
| 3 September 2006 | |
| Is there ever a reason not to make the election if one qualifies? | |
Death&Taxes (talk|edits) said: | 3 September 2006 |
| Client with 14 properties: do the math at 750 hours each and you will see why he must elect. But some of these have large unused losses, which on sale of one are trapped behind the passive loss wall. So I would say had he owned three properties, I might think about it....by the way this man's sole income is from rentals. | |
| 3 September 2006 | |
| The only reason I can think of is if a person had no other income in which he was not concerned about offsetting with rental losses. | |
| 3 September 2006 | |
| Would create NOL then. Looks like I will ALLWAYS make the election. Thanks | |
| 4 September 2006 | |
| There is nothing in the real estate professional rules that says the taxpayer must have 750 hours of participation in each of the rental activities. Instead, the taxpayer must satisfy one of the 7 alternative tests for material participation in each activity. This can be done with as little as 100 hours for each activity. The aggregation election is made when the taxpayer cannot satisfy one of the 7 material participation standards without treating all of his activities as one activity.
The aggregation election should be made with caution if there are suspended passive losses on specific properties that will not be freed up upon the sale of the sale of those specific properties (as a result of the aggregation election). | |
| 4 September 2006 | |
| If the election is made in one year and the taxpayer acquires additional rental properties the next year, can these new rental properties be grouped with those in the original election? | |
| April 4, 2007 | |
| I always figured meeting the RE Professional Rules was sufficient. However, material participation is the other side of the coin.
PPC gives an example where a taxpayer meets the RE Professional Rules with respect to his real estate development activites, but does not meet the material participation rules with respect to each of his rental real estate activities. If he does NOT make the election, then his rental real estate losses would still be trapped by the PAL rules. By making the election, his rental real estate activities would be combined. He would then meet the material participation rules. And only then would he be able to deduct those losses without applying the PAL rules. | |
| April 4, 2007 | |
| I assume everybody else already knew this. Thanks a lot for not letting me in on it. | |
| 4 April 2007 | |
| Hey Paul who knows everything? Not you. Not me. Maybe not even Riley. | |
Tfortaxes@msn.com (talk|edits) said: | 4 April 2007 |
| be nice or go to your rooms | |
| 4 April 2007 | |
| I am not nice. I am toxic and evil. I am doing my best to not have contact with the rest of the human race so that I do not poison everyone else. | |
| 7 April 2009 | |
| Bringing this back up and back on topic. TP and spouse own 16 rental properties and are 'eaten up' by their participation in running, cleaning, managing, repairing, recording, etc. these rentals. She does virtually nothing but nearly 7 days every week in one form or another. He has worked some outside the rentals, but not much. Last year, they, maybe too aggressively, classified 10 of the properties as meeting the RE pro requirements and did not elect to aggregate. Now, this year, I'm concerned about this. I believe between the two of them they spend at least 25-30 hours per week on the 10 properties, so material participation should be okay. However, you apparently cannot combine their time to meet the RE pro rules. Question, in this case (and these were all placed in service in 2007 or 2008 so do not have suspended PALs), aggregating so that they don't have to meet the 750 hours/property rule seems to be viable. However, since this election was not made on the 2007 return is it possible to make the election on the 2008? Is there such a thing as a late election? Thank you. | |
| 7 April 2009 | |
| the election may be made on any return, but then applies from that point forward.
the real question is whether these are real 'rentals' or do some rise to the level of a trade or business? | |
| 7 April 2009 | |
| Okay, now I'm thrown. I'm not sure what you're asking or what that would mean to reporting. I thought I had read everything that I would need to make a determination. | |
| 7 April 2009 | |
| that many hours of service makes it sound like some of the units are weekly vacation rentals, not long term leases. A vacation/transient rental business would be shown on Sch C and not E.
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| 7 April 2009 | |
| At one time I owned 8 rental homes. The only time I did work on them was when they were vacant. Never each month. | |
| 7 April 2009 | |
| granted, with 10 homes they could indeed have one vacant each month, but many of my tenants stayed for 2-6 years. | |
| 8 April 2009 | |
| Okay, no these are definitely one family residential rentals. They've dealt with a lot of vacancy and short-timers this past year and are so over their heads committed that they have no choice but to do everything. Yard work, bookkeeping, repairs, collecting rent, pursuing rent and all the finacial issues, I included all of this. Some of these are older homes in need of constant work and repairs. They made many, many poor decisions and it has overwhelmed them. Referring back to Riley's post above, it seems like we may not have to aggregate, but I'm wondering why we shouldn't or if we can since it wasn't done for 2007. That is, if we qualify. | |
Harry Boscoe (talk|edits) said: | 8 April 2009 |
| Is there ever a reason not to make the election to combine and consider all real estate as one activity?
Yes, yes, yes. There are several reasons. One, your client's already existing - past year - PALs won't be deductible in carryover years. Another, when your client sells one of his properties, it won't "free up" any present or future PALs because the current and future PALs belong to this "aggregated" and *single* passive activity. The available $25,000 per year - if your client can get there - don't require this damnable "aggravation" election and might be far and away the better choice here. The election puts your client into uncharted waters, because .. because they're uncharted. Beware, beware, beware. | |
Harry Boscoe (talk|edits) said: | 8 April 2009 |
| Here's the text of the election/revocation regulation. Thanks, Solomon.
(g) Election to treat all interests in rental real estate as a single rental real estate activity— (1) In general. A qualifying taxpayer may make an election to treat all of the taxpayer's interests in rental real estate as a single rental real estate activity. This election is binding for the taxable year in which it is made and for all future years in which the taxpayer is a qualifying taxpayer under paragraph (c) of this section, even if there are intervening years in which the taxpayer is not a qualifying taxpayer. The election may be made in any year in which the taxpayer is a qualifying taxpayer, and the failure to make the election in one year does not preclude the taxpayer from making the election in a subsequent year. In years in which the taxpayer is not a qualifying taxpayer, the election will not have effect and the taxpayer's activities will be those determined under §1.469–4. If there is a material change in the taxpayer's facts and circumstances, the taxpayer may revoke the election using the procedure described in paragraph (g)(3) of this section. </p>(2) Certain changes not material. The fact that an election is less advantageous to the taxpayer in a particular taxable year is not, of itself, a material change in the taxpayer's facts and circumstances. Similarly, a break in the taxpayer's status as a qualifying taxpayer is not, of itself, a material change in the taxpayer's facts and circumstances. (3) Filing a statement to make or revoke the election. A qualifying taxpayer makes the election to treat all interests in rental real estate as a single rental real estate activity by filing a statement with the taxpayer's original income tax return for the taxable year. This statement must contain a declaration that the taxpayer is a qualifying taxpayer for the taxable year and is making the election pursuant to section 469(c)(7)(A). The taxpayer may make this election for any taxable year in which section 469(c)(7) is applicable. A taxpayer may revoke the election only in the taxable year in which a material change in the taxpayer's facts and circumstances occurs or in a subsequent year in which the facts and circumstances remain materially changed from those in the taxable year for which the election was made. To revoke the election, the taxpayer must file a statement with the taxpayer's original income tax return for the year of revocation. This statement must contain a declaration that the taxpayer is revoking the election under section 469(c)(7)(A) and an explanation of the nature of the material change. Caveat: this regulation tells you *nothing* about the consequences of the election, which makes all [all? not just some of them?] your real estate rentals into one big business activity for purposes of applying the material participation tests. With it you will have only one passive loss which will be available against - you got it - the income from this one business activity. Which disappears when [if] you revoke the election... But notice, in (2) above that "...a break in the taxpayer's status as a qualifying taxpayer is not, of itself, a material change in the taxpayer's facts and circumstances" which would allow him to revoke an aggregation election. | |
| 8 April 2009 | |
| Yes, I've read and read this but did miss (g)(1)(c) where it states that failure to make one year, etc. I do understand the part about not electing due to existing PALs, but as I mentioned these were only PIS in 2007 and 2008 so the losses in 2007 were taken as a RE pro and therefore not passive and not limited. I'm concerned about 2007 because no election was made and the 750 hour (or as Riley states above - at least 100 hours per activity, though I think they'd still come close) requirment. The part you mentioned about the PALs getting 'stuck' until all properties are disposed of confuses me, though I was aware of this. If we qualify as RE pro and therefore the losses aren't PAL and are taken in full each year, how does this fit in? With nearly $90,000 in losses on the properties that could qualify as RE pro, I'd rather determine if they do qualify then to have PALs limited to $25,000. I hope this make some sense. | |
| 8 April 2009 | |
| The one issue that bothers me with this election, which was discussed without resolution on another thread, is this: if the taxpayer makes the election, has he also grouped his activities under 1.469-4? If the election essentially means that the activities are grouped as one in years when he is not a real estate professional, then that is an important fact when making this decision. | |
