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Refer to the Ethics & Equity information reflected on page 11-18 of the textbook. Prepare a discussion board post commenting on your reaction to Ralphs position. Your discussion will include references to outside information as necessary. You should also respond to two other discussion board responses.

Topic: Week 10 Discussion Boa x C Get Homework Help With Che X C Chegg eReader G Refer to "The Big Picture" at th x G Refer to the "Ethics & Equity" + C chegg.com/reader/9780357109700/523/ * : weight reduction Q 11-18 PART 3 Deductions and Credits employee are not treated as being related to a real estate trade or business unless the employee performing the services owns more than a 5 percent interest in the employer. In addition, a closely held corporation may also qualify for the passive activity loss relief if more than 50 percent of its gross receipts for the year are derived from real property trades or businesses in which it materially participates, ETHICS & EQUITY Punching the Time Clock at Year-End As the end of the tax year approaches, Julie, a successful full-time real estate developer and investor, recog nizes that her income tax situation for the year could be bleak. Unless she and her spouse, Ralph, are able to generate more hours of participation in one of her real estate rental activities, they will not reach the material participation threshold. Conse- quently, the tax losses from the venture will not be deductible. To ensure deductibility, Julie suggests the following plans She will document the time she spends thinking about her rental activities During the week, Ralph will visit the apartment building to oversee (in a management role) the operations of the rentals On weekends, she and Ralph will visit the same units to further evaluate the operations. Also on the weekends, while they are doing their rou- tine household shopping, they will be on the lookout for other rental properties to buy. Julie plans to count both her and Ralph's weekend hours toward the tally of total participation Julie contends that the law clearly allows the efforts of one's spouse to count for purposes of the material participation tests. Likewise, nothing in the tax law requires taxpayers to be efficient in their hours of participation. How do you react? Real Estate Rental Activities with Active Participation The second exception to the passive activity loss limits is more significant in that it is not restricted to real estate professionals. This exception allows individuals to deduct up to $25,000 of losses from real estate rental activities against active and portfolio income each year. The potential annual $25,000 deduction is reduced by 50 percent of the taxpayer's AGI in excess of $100,000. As a result, the entire deduction is phased out at $150,000 of AGI, If married individuals file separately, the $25,000 deduction is reduced to zero unless they lived apart for the entire year. In this case, the loss amount is $12,500 each and the phaseout begins at $50,000 of AGI." To qualify for the $25,000 exception, a taxpayer must meet both of the following requirements: Actively participate in the real estate rental activity, and Own 10 percent or more in value) of all interests in the activity during the entire taxable year (or shorter period during which the taxpayer held an interest in the activity) The difference between active participation and material participation is that the active participation threshold can be satisfied without regular, continuous, and substan- tial involvement in operations. The active participation standard is met if the taxpayer participates in making management decisions in a significant and bona fide sense. Approving new tenants, deciding on rental terms, and approving capital or repair expenditures meet this test. Topic: Week 10 Discussion Boa x C Get Homework Help With Che X C Chegg eReader G Refer to "The Big Picture" at th x G Refer to the "Ethics & Equity" + C chegg.com/reader/9780357109700/523/ * : weight reduction Q 11-18 PART 3 Deductions and Credits employee are not treated as being related to a real estate trade or business unless the employee performing the services owns more than a 5 percent interest in the employer. In addition, a closely held corporation may also qualify for the passive activity loss relief if more than 50 percent of its gross receipts for the year are derived from real property trades or businesses in which it materially participates, ETHICS & EQUITY Punching the Time Clock at Year-End As the end of the tax year approaches, Julie, a successful full-time real estate developer and investor, recog nizes that her income tax situation for the year could be bleak. Unless she and her spouse, Ralph, are able to generate more hours of participation in one of her real estate rental activities, they will not reach the material participation threshold. Conse- quently, the tax losses from the venture will not be deductible. To ensure deductibility, Julie suggests the following plans She will document the time she spends thinking about her rental activities During the week, Ralph will visit the apartment building to oversee (in a management role) the operations of the rentals On weekends, she and Ralph will visit the same units to further evaluate the operations. Also on the weekends, while they are doing their rou- tine household shopping, they will be on the lookout for other rental properties to buy. Julie plans to count both her and Ralph's weekend hours toward the tally of total participation Julie contends that the law clearly allows the efforts of one's spouse to count for purposes of the material participation tests. Likewise, nothing in the tax law requires taxpayers to be efficient in their hours of participation. How do you react? Real Estate Rental Activities with Active Participation The second exception to the passive activity loss limits is more significant in that it is not restricted to real estate professionals. This exception allows individuals to deduct up to $25,000 of losses from real estate rental activities against active and portfolio income each year. The potential annual $25,000 deduction is reduced by 50 percent of the taxpayer's AGI in excess of $100,000. As a result, the entire deduction is phased out at $150,000 of AGI, If married individuals file separately, the $25,000 deduction is reduced to zero unless they lived apart for the entire year. In this case, the loss amount is $12,500 each and the phaseout begins at $50,000 of AGI." To qualify for the $25,000 exception, a taxpayer must meet both of the following requirements: Actively participate in the real estate rental activity, and Own 10 percent or more in value) of all interests in the activity during the entire taxable year (or shorter period during which the taxpayer held an interest in the activity) The difference between active participation and material participation is that the active participation threshold can be satisfied without regular, continuous, and substan- tial involvement in operations. The active participation standard is met if the taxpayer participates in making management decisions in a significant and bona fide sense. Approving new tenants, deciding on rental terms, and approving capital or repair expenditures meet this test

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