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Šóóą@7 7 6ģąņņPATENTAXņņšš€óóˆŠ  M Šą@``5ģąPRESENTATIONóóˆŠ >!~ ŠĢŌ#†X7XxxŠ#ŌDisclaimer:€Educational€Only:€This€outline€is€Educational€Only€and€no€part€of€this€presentation€can€beŠ ‡'Ē# Šconsidered€as€federal€or€state€tax€advice,€opinion,€or€position€and€is€not€intended€or€written€to€be€used,€and€mayĻnot€be€used,€for€the€purpose€of€œń uń(I)ń uń›œń uń(i)ń uń›€avoiding€tax„related€penalties€under€the€internal€revenue€Code€or€(ii)Ļpromoting,€marketing€or€recommending€to€another€party€any€tax„related€matters€addressed€herein,€nor€(iii)Ļconstituting€guidance€on€any€tax€or€intellectual€property€matter.Ģā āŠ ,T( Šņ ņŌ‡č(Ž čXX7Ōą@¹¹5ģąINTRODUCTIONˆĢā āŌ#†X7X čč(Ž*#ŌĢI.ą ° ąą  ąIntroduction€„€DEFINITIONSó óŠ )i ŠĢą ° ąA.ą  ąReal€Estate€as€Capital€Asset€(IRC€šš€1221(a))Š ü< ŠĢą ° ąą  ą1.ą0 ` ąCapital€assets€include€all€assets€held€by€the€taxpayer€except€for€assets€listed€in€IRC€ššŠ Ī  Š1221(a).Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ąProperty€held€by€the€taxpayer€primarily€for€sale€to€customers€in€the€ordinary€course€of€hisŠ ‰ É  Štrade€or€business€(inventory)€is€an€exception€to€capital€asset€status.€€IRC€šš€1221(a)(2).€ĻThus€someone€who€buys€and€keeps€property€as€inventory€rather€than€investment,€keepsĻan€asset€which€is€not€a€capital€asset.Š ` €%` €% ŠĢą ° ąB.ą  ąDefinition€„€Real€Property€Trade€or€Business?Š V  ŠĢą ° ąą0  ą1.ą0` €%€%ąReal€property€held€primarily€for€sale€in€the€ordinary€course€of€the€taxpayerššs€trade€orŠ č( Šbusiness€doesnššt€qualify€as€a€capital€asset.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ąWhether€particular€real€estate€sold€is€a€capital€asset€is€decided€on€a€case€by€case€basisŠ £ć Štaking€into€consideration€factors€including€number€and€taxpayerššs€frequency€of€sales,Ļsubdividing€and€promotional€activities.€Š ` €%` €% ŠĢą ° ąC.ą  ąFive€Year€Land€Subdivision€Rule€for€non„corporate€taxpayersŠ G‡ ŠĢą ° ąą  ą1.ą0 ` ąAn€individual€trust,€estate€or€S€corporation€wonššt€be€treated€as€holding€land€primarily€forŠ Y Šsale€to€customers€simply€because€the€taxpayer€subdivided€a€tract€of€land€into€lots€orĻparcels€and€engaged€in€advertising,€promotion,€selling€activities€or€the€use€of€sales€agentsĻin€selling€lots€in€the€subdivision€if€the€taxpayer:Š ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąhasnššt€previously€held€any€part€of€the€same€land€primarily€for€sale€to€customers€inŠ ¦ę Šthe€ordinary€course€of€business,€and€in€the€year€of€the€sale€doesnššt€hold€any€otherĻreal€estate€for€sale€to€customers;Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ądoesnššt€,while€holding€the€land€or€as€part€of€a€contract€of€sale€with€the€buyer,Š J#Š" Šmake€š šsubstantial€improvementsšš€on€the€land€that€substantially€increase€the€valueĻof€the€lot€sold€[unless,€if€elected€improvements€needed€to€make€marketable,€and€ifĻthat€has€been€held€for€ten€years€or€more],€andŠ ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąeither€has€owned€the€land€for€five€years€or€more,€or€acquired€it€by€inheritance€orŠ ×'$' Šdevise€(IRC€šš€1237(a)).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(d)ą0 ø ąhowever€if€more€than€five€lots€of€parcels€in€the€same€tract€are€sold€or€exchanged,Š ’*Ņ&* Š5%€of€any€gain€from€the€later€transactions€is€ordinary€gain€(IRC€šš€1237€(b)(1))Š ø €%ø €% ŠŠ d,¤(, Šą ° ąą  ąą ` ą(e)ą0 ø ąThe€sale€or€exchange€of€qualifying€subdivided€land€thatššs€business€property€canŠ Ą Šresult€in€an€ordinary€loss€(Reg.€1.1237„1(f))Š ø €%ø €% ŠĢĢŌ‡č(Ž čXX7ŌII.ą@{{6ģąņ ņACQUISITIONó óˆŠ d¤ ŠŌ#†X7X čč(ŽŽ#ŌĢą ° ąA.ą0  ąUnimproved€Land€is€Not€Depreciable.€For€improved€land€the€purchase€is€treated€as€a€depreciableŠ Ģ  Šasset€(the€improvement)€attached€to€the€non„depreciable€land.Š €%€% Šņ ņĢó óą ° ąB.ą0  ąImproved€Real€Estate€Acquisition€costs€are€allocable€based€upon€FMV€(Reg.€šš1.167(a)„5).€Š ˆ Č  ŠTechniques€to€attempt€to€allocate€more€value€to€the€depreciable€portion€include:Š €%€% ŠĢą ° ąą  ą1.ą0 ` ąEstimated€replacement€cost€(TC€Memo€1982„51)ŠCƒ ` €%` €% ŠĢą ° ąą  ą2.ą0 ` ąTaxpayers€own€experience€(TC€Memo€1973„212)ŠU ` €%` €% ŠĢą ° ąą  ą3.ą0 ` ąGovernmental€Tax€Assessor€Appraisals(€PLR€9110001)Šē'` €%` €% ŠĢą ° ąC.ą  ąBonus€Depreciation€for€newly€acquired€property.Š ¹ł ŠĢą ° ąą  ą1.ą0 ` ąImproved€Real€estate€acquired€&€placed€into€service€in€2008€&€2009€is€eligible€for€bonusŠ ‹Ė Šdepreciation€allowance€(IRC€šš168(k)).Š ` €%` €% ŠĢą ° ąą  ą2.ą0 ` ąImproved€Leased€Property€also€qualifies€for€bonus€depreciation€allowance€(IRCŠ F† Ššš168(k)(3))€where€conditions€are€met:Š ` €%` €% ŠĢą ° ąą  ąą0 ` ą(a)ą0ø ` €%` €%ąInterior€improvements€(walls,€carpet,€special€structural€changes).ŠAø €%ø €% ŠĢą ° ąą  ąą0 ` ą(b)ą0ø ` €%` €%ąNon„residential€propertyŠÓø €%ø €% ŠĢą ° ąą  ąą0 ` ą(c)ą0ø ` €%` €%ąImprovement€is€part€of€the€lease€even€if€made€by€a€tenant,€landlord,€or€jointly.Š„åø €%ø €% ŠĢą ° ąą  ąą0 ` ą(d)ą0ø ` €%` €%ąInterior€improvements€(walls,€carpet,€special€structural€changes).Šw!· ø €%ø €% ŠĢą ° ąą  ąą0 ` ą(e)ą0ø ` €%` €%ąThe€improvement€is€not€part€of€the€original€building€construction€by€virtue€ofŠ I#‰" Šgreater€than€three€years€having€elapsed€since€its€original€completion.Š ø €%ø €% ŠĢą ° ąD.ą  ąReal€Estate€Investment€Trusts€(REITS)Š &D"% ŠĢŌ‡ X7XXX7Ōą ° ąą  ą1.ą ` ąCorporation€or€Business€Trust€formŠ Ö'$' ŠĢą ° ąą  ą2.ą0 ` ąSub„types€include€equity€REITS€for€exercising€ownership€of€real€property,€mortgageŠ Ø)č%) ŠREITS€for€exercising€ownership€of€mortgages€in€real€property,€and€hybrid€REITS€forĻcombination€of€the€two.Š ` €%` €% ŠŠ c,£(, Šą ° ąą  ą3.ą ` ąGeneral€Tax€CharacteristicsŠ Ą ŠĢŌ#†X7XX X7å#Ōą ° ąą  ąą ` ą(a)ą0 ø ąUsually€Operates€Income€Producing€property€including€commercial€retailŠ ’Ņ Šproperty,€industrial€rental€property€or€housing.€€The€REIT€entity€is€usually€notĻtaxed€on€its€income€€unless€earned€amounts€are€not€distributed.€A€REIT€gets€a€taxĻdeduction€for€dividends€paid€from€earnings€and€profits.€Ō‡ X7XXX7Ō(IRC€šš€561€&€562).Ō#†X7XX X7h!#ŌŠMø €%ø €% ŠĢŌ‡ X7XXX7Ōą ° ąą  ąą ` ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0  ąThreshold€for€the€deduction€for€dividends€paid€requires€a€distribution€ofŠ  _ Š90%€of€the€REIT€income€(a)€cash€or€(b)€1031€failure€exchange€income€(c)Ļdebt€instrument€cash,€and€(d)€COD€income..€Š €%€% ŠĢą ° ąą  ąą ` ąą ø ą(ii)ą0  ąGenerally,€undistributed€amounts€retained€by€the€REIT€are€taxed€as€CŠ Ć   Šcorporation€income.Š €%€% ŠŌ#†X7XX X7ß!#ŌĢŌ‡ X7XXX7Ōą ° ąą  ąą ` ąą ø ą(iii)ą0  ąPreviously,€undistributed€capital€gains€were€double€taxed,€once€at€theŠ ~¾  Šcorporate€rate€to€the€REIT,€and€again€upon€distribution€to€theĻpartner/owners.€€In€1997,€IRC€šš857(b)(3)(D)€was€added€to€enable€theĻREIT€to€pass€through€a€credit€for€tax€paid€on€retained€capital€gains,€and€itĻprovides€for€a€step„up€in€basis€of€shares€representing€the€amount€ofĻretained€capital€gains.Š €%€% ŠŌ#†X7XX X7($#ŌĢŌ‡ X7XXX7Ōą ° ąą  ą4.ą0 ` ąREITS€have€a€number€of€specific€requirements€found€at€IRC€šššš€856„859.ŠŻ` €%` €% ŠĢą ° ąą  ąą ` ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0  ąREITS€are€required€to€pay€90%€of€their€taxable€income€to€shareholders,Š Æļ Šand€thus€cannot€take€advantage€of€the€retained€earnings€provisions€ofĻcorporations.€Š €%€% ŠĢą ° ąą  ąą ` ąą ø ą(ii)ą0  ąBeneficial€ownership€is€held€by€100€or€more€persons€IRC€šš€856€(a)(5).ŠS“€%€% ŠĢą ° ąą  ąą ` ąą ø ą(iii)ą0  ą95%€of€income€is€derived€from€dividends,€interest,€real€property€rents€orŠ %e Šgain€from€the€sale€of€stock,€securities€and€real€property.€(šš€856€(c)(2)).Š €%€% ŠĢą ° ąą  ąą ` ąą ø ą(iv)ą0  ątransferrable€shares€or€transferrable€certificates€of€beneficial€interest€areŠ ą   Šrequired.Š €%€% ŠĢą ° ąą  ąą ` ąą ø ą(v)ą0  ąMany€other€specific€technical€requirements€are€based€upon€hundreds€ofŠ ›#Ū# Šcircumstances€and€the€specifics€are€too€numerous€to€mention€here.Š €%€% ŠĢŌ#†X7XX X7M&#Ōą ° ąD.ą  ąApportionment€of€real€property€taxes€between€purchaser€and€seller.Š V&–"& ŠĢą ° ąą  ą1.ą0 ` ąSeller€is€charged€with€the€allocation€of€property€tax€up€to€the€day€before€the€sale.€(IRC€ššŠ ((h$( Š164(d)(2)).Š ` €%` €% ŠĢą ° ąą  ą2.ą0 ` ąPurchaser€is€charged€with€the€allocation€of€property€tax€on€the€day€of€sale€and€thereafterŠ ć*#'+ Š(IRC€šš€164(d)(1)).Š ` €%` €% ŠŠ µ,õ(- Šą ° ąE.ą  ąDealers€in€Real€EstateŠ Ą ŠĢą ° ąą  ą1.ą0 ` ąClassification€:€dealer€or€investor?Š’Ņ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(a)ą0ø €%€%ąA€dealer€„€property€is€held€primarily€for€sale€to€customers€in€ordinary€course€ofŠ d¤ Štrade€or€businessŠ ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(b)ą0ø €%€%ąAn€investor€„€passive€owner€„€holds€property€for€future€appreciation€in€value€orŠ  _ Šfor€its€ability€to€produce€incomeŠ ø €%ø €% ŠĢą ° ąą  ą2.ą0 ` ąTax€treatment€for€dealer€or€investorŠŚ  ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąDealer€„€gains€and€losses€are€ordinary.Š¬ģ ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąDealer€cannot€use€the€installment€method€„€gain€must€be€recognized€on€lump€sumŠ ~¾  Šof€proceeds.€€Exception,€However,€dealers€in€timeshares€or€residential€lots€canĻelect€to€use€the€installment€method,€if€they€pay€an€interest€charge€on€the€deferredĻtax.Š ø €%ø €% ŠĢą ° ąą  ąą0 ` ą(c)ą ø ąInvestor€„€gains€and€losses€are€capital.Š K` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(d)ą0ø ` €%` €%ąDealer€sales€of€property€the€seller€used€or€produced€in€the€farming€business€canŠ Ż Šbe€reported€on€the€installment€method€without€any€interest€charge.€[IRC€453(l)]Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(e).ą0 ø ąInvestor€can€use€installment€method€„€unless€he€elects€out€and€then€he€has€toŠ ˜Ų Šreport€the€entire€amount€of€the€gain€in€the€year€of€the€sale.€[IRC€453(d)]€ElectingĻout€(by€using€Schedule€D€or€Form€4797€„€Sale€of€Business€Property),€might€be€ofĻbenefit€in€a€couple€of€instances:Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ąœńuń(ńuńńuńIńuńńuń)ńuńńuń(i)ńuń›ą0` €%` €%ąTax€carryovers€can€be€used€to€offset€the€gain€from€the€sale€„€tax€carryoversŠ %e Šmay€occur€when€there€is€a€net€operating€loss,€charitable€contribution€orĻperhaps€a€business€credit,€orŠ €%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ą(ii)ą0` €%` €%ąWhen€the€installment€gain€relates€to€a€passive€activity€with€suspendedŠ É! ! Šlosses€that€exceed€the€amount€of€the€gain.Š €%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ą(iii).ą0` €%` €%ąTaxpayer€expects€a€rate€increase€due€to€tax€law€changes€that€could€cause€aŠ „$Ä $ Šhigher€tax€if€the€gain€is€indeed€deferred€„€retroactive€elections€are€notĻallowed€unless€there€was€an€error€by€the€tax€return€preparer.€[RevenueĻRuling€90„46]Š €%€% ŠĢą ° ąF.ą  ąBrief€Overview€of€Acquisition€by€IRC€šš1031Š )Q%) ŠĢą ° ąą  ą1.ą0 ` ąBoth€the€property€acquired€and€relinquished€should€be€held€for€productive€use€in€a€tradeŠ ć*#'+ Šor€business,€or€for€investment.Š ` €%` €% ŠŠ µ,õ(- Šą ° ąą  ą2.ą0 ` ąBoth€the€property€acquired€and€relinquished€should€be€of€š šlike€kindšš.€€Non„like€kindŠ Ą Šproperty€includes€(a)€foreign€property€and€(b)€personal€property,€(c)€personal€residence.€Ļ(However,€a€mixed€use€second€home€has€a€more€stringent€set€of€rules€outlined€in€Rev.ĻProc.€2008€„16)Š ` €%` €% ŠĢą ° ąą  ą3.ą ` ąEach€taxpayerššs€qualification€under€šš1031€is€determined€separately.Š M ŠĢą ° ąą  ą4.ą0 ` ąA€two€year€holding€period€has€been€held€to€clearly€satisfy€the€š šheld€foršš€requirement,€butŠ  _ Šlesser€holding€period€does€not€per€se€disqualify€the€exchange.Š ` €%` €% ŠĢą ° ąą  ą5.ą0 ` ąExcluded€property€includes€(a)€inventory,€(b)€partnership€interests,€(c)€stocks€and€bonds,Š Ś   Š(d)€goodwill,€and€(e)€the€exchange€of€one€type€of€ongoing€business€for€another€type€ofĻongoing€business.Š ` €%` €% ŠĢą ° ąą  ą6.ą0 ` ąRelated€Taxpayers€who€fail€to€keep€the€property€for€two€years€(under€conditions€of€aŠ ~¾  Švoluntary€exchange)€trigger€recognition.€€Related€taxpayers€include€family€members,Ļpersons€who€own€more€than€50%€interested€in€a€related€corporation€(S€or€C)€orĻpartnership.Š ` €%` €% ŠĢĢņ ņŌ‡č(Ž čXX7ŌIII.ó óą@żż7ģąņ ņOPERATIONó óˆŠ ō4 ŠŌ#†X7X čč(Žš?#ŌĢą ° ąA.ą0  ąņ ņPassive€Activity€Rules€„€Incomeó óŠ\œ€%€% ŠĢą ° ąą  ą1.ą0 ` ąRental€Activities€are€presumed€to€be€passive€activities€(IRC€šš469(c)(2)).€€Income€fromŠ 1q Špassive€rental€is€passive€activity€gross€income.€Rental€losses€from€passive€activities€mayĻonly€be€used€to€offset€passive€activity€income.Š ` €%` €% ŠĢą ° ąą  ą2.ą ` ąPortfolio€income€is€distinguished€from€passive€income:Š Õ Šą ° ąą  ąą ` ą(a)ą0 ø ąAll€gross€income€OTHER€THAN€income€derived€in€the€ordinary€course€of€a€tradeŠ ¾ž Šor€business.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąExamples€of€portfolio€income€include€dividends,€royalties,€annuities€net€incomeŠ y!¹  Šfrom€publicly€traded€partnerships,€gains,€losses€and€expenses€related€to€propertyĻthat€produces€portfolio€income,€income,€gain€or€loss€from€investment€of€workingĻcapital.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąIncome€which€would€otherwise€be€portfolio€income,€is€trade€or€business€income€ifŠ &F"% Šthe€trade€or€business€is€closely€related€to€operation€of€the€portfolio€function.€(RegĻšš1.469„2T(c)(3)(ii)€&€(iii).Š ø €%ø €% ŠĢą ° ąą  ą3.ą ` ąCertain€categories€of€income€are€designated€as€non„passive:Š Ŗ)ź%) ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąSome€portion€of€net€passive€income€from€each€activity€in€which€the€taxpayerŠ |+¼'+ Šactively€participates€for€more€than€100€hours€but€less€than€material€participation,Š e,„(, ŠIF€passive€activity€income€exceeds€passive€activity€losses€(Reg€šš€œ1.469„¼2T(f)(2)ńuń(I)ńuńńuń›ńuńńuń(i)ńuń›€&€(ii).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąNet€passive€income€from€a€rental€activity€in€where€less€than€30%€of€theŠ {» Šunadjusted€depreciation€remains€depreciable€(Reg€šš€1.469„2T(f)(3))Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąRental€from€development€activity€property.€(Reg€šš1.469„2(f)(5)€&€šš1.469„Š 6 v Š11(c)(2).€(development€of€rental€building€improvements€on€real€estate).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(d)ą0 ø ąSelf€rented€property€(Reg€šš1.469„2(f)(6)Šń 1 ø €%ø €% ŠĢą ° ąą  ąą ` ą(e)ą0 ø ąinterest€income€from€a€lending€activity€(Reg€šš1.469„2(f)(4)ŠĆ  ø €%ø €% ŠĢą ° ąą  ąą ` ą(f)ą0 ø ąroyalty€income€from€intangible€property€held€by€partnership,€S€corp,€estate€orŠ •Õ  Štrust€if€taxpayer€acquired€ownership€after€creation€of€the€intangible,€(or€performedĻsubstantial€services€or€expenditures).€(Reg€šš1.469„2T(f)(7).€(all€threeĻcircumstances€point€to€an€active€business€or€creation€role,€with€self€createdĻintangibles€being€presumed€to€be€passive).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(g)ą0 ø ąrental€of€rooms€for€less€than€30€days€where€significant€services€(room€cleaning,Š  K Šlaundry,€&€room€service)€are€performed.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(h)ą0 ø ąsituations€where€the€rental€is€incidental€to€the€non„rental€activities,€such€asŠ Ę Šhospitals.Š ø €%ø €% ŠĢą ° ąą  ąą ` ąœńuń(I)ńuń›œńuń(i)ńuń›ą0 ø ąNon€exclusive€use,€where€land€or€improvements€are€made€available€to€customersŠ Į Šor€potential€clients.Š ø €%ø €% ŠĢą ° ąą0  ą4.ą0` €%€%ąņ ņTax€Treatment€for€income€when€property€is€not€rented€for€profitó ó€(such€as€occasionalŠ <| Šrental)Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(a)ą0ø €%€%ąDeductions€for€rental€expenses€incurred€allowed€ONLY€up€to€the€amount€of€Š ś: Šrental€income.€Excess€rental€expense€CANNOT€carry€forward€to€the€next€year.€Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(b)ą0ø €%€%ąWhere€to€report€„€Not€for€profit€rental€income€should€be€reported€on€Form€1040,Š µ"õ" Šline€21.€Š ø €%ø €% Šą0 ° ąą0°€%°€%ą€Š €%€% Šą0 ° ąą0°€%°€%ąą ` ą(c)ą0ø €%€%ąMortgage€interest€(if€a€main€home€or€second€home)€,€real€estate€taxes€and€casualtyŠ p%°!% Šlosses€are€reported€on€Schedule€A€of€Form€1040€if€deductions€are€itemized.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(d)ą0ø €%€%ąOther€rental€expenses€can€be€regarded€as€miscellaneous€expenses€and€listed€onŠ +(k$( Šline€22€of€Schedule€A.€The€rule€for€deduction€of€these€expenses€is€that€theyĻrepresent€more€than€2%€of€AGI.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(e)ą0ø €%€%ąTaxpayers€may€post€pone€the€declaration€of€whether€their€rental€property€is€aŠ Ļ+(, Šrental€for€profit€through€the€filing€of€Form€5213.€The€3€out€of€5€rule€„€if€incomeŠ ø,ų(- Šfrom€rental€exceeds€rental€expenses€for€AT€LEAST€3€years€out€of€5€consecutiveĻyears€„€is€used.Š ø €%ø €% ŠĢą ° ąą  ą5.ą0 ` ąMaterial€Participation€is€another€test€to€determine€if€a€for„profit€activity€is€passive.€€ThereŠ {» Šare€seven€criteria€for€establishing€material€participation€which€will€cause€the€activity€notĻto€be€passive.€(Reg€šš1.469„5T)Š ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąMore€than€500€hours€spent€on€the€activity€per€year.Š _ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąTaxpayer€is€the€sole€participant€in€the€activity.Šń 1 ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąThe€taxpayer€spends€more€than€100€hours€on€the€activity€and€no€one€other€thanŠ Ć   Šthe€taxpayer€spends€more€time€on€the€activity.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(d)ą0 ø ąThe€taxpayer€met€the€material€participation€test€for€a€total€of€any€of€5€years€out€ofŠ ~¾  Šthe€past€10€years.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(e)ą0 ø ąThe€activity€is€personal€service€based€and€the€taxpayer€materially€participated€forŠ 9y Šany€three€prior€years.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(f)ą0 ø ąThe€taxpayer€(1)€participates€for€more€than€100€hours,€AND€(2)€taxpayerŠ ō4 Šparticipation€is€regular,€continuous€and€substantial.€€(Some€specific€activities€areĻexcluded€from€the€test€(Reg.€šš€1.469„5T(b)(2)(ii).€€Examples€include€managementĻactivities,€compensated€services,€&€non„trade€or€non„business€activities.Š ø €%ø €% ŠĢą ° ąņ ņB.ą0  ąPassive€Activity€Rules€„€Deductions€Beyond€Passive€Incomeó óŠĮ€%€% ŠĢą ° ąą  ą1.ą0 ` ąAt„€Risk€Rules€for€Real€Property€(first€threshold)ŠT”` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąGenerally,€a€loss€will€not€be€allowed€for€any€property,€entity,€or€investment€inŠ &f Šwhich€the€taxpayer€is€not€š šat€riskšš€in€terms€of€experiencing€a€real€economicĻlosses.€€A€taxpayer€engaged€in€the€activity€of€holding€real€property€is€subject€toĻthe€at€risk€rules€for€losses€on€property€placed€in€service€after€1986.€The€at„riskĻrules€also€apply€to€a€taxpayerššs€losses€from€real€estate€attributable€to€an€interest€inĻa€pass„through€entity€that€is€acquired€after€1986€regardless€of€when€the€entityĻacquired€the€real€property.€(IRC€Section€465(c)(3))Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(b)ą0ø €%€%ąTaxpayer€is€considered€at„risk€for€his€share€of€any€š šqualified€nonrecourseŠ n%®!% Šfinancingšš€secured€by€the€real€property€(IRC€Section€465(b)(6)(A);€this€meansĻfinancing:Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0` €%` €%ąBorrowed€by€the€taxpayer€with€respect€to€the€activity€of€holding€realŠ )R%) Šproperty€(as€specially€defined)Š €%€% ŠĢą0 ° ąą  ąą0` °€%°€%ąą0ø ` €%` €%ą(ii)ą0ø €%ø €%ąBorrowed€by€taxpayer€from€a€qualified€person(as€specifically€defined)€orŠ Ķ+ (, Šfrom€any€federal,€state,€or€local€government€or€instrumentality€or€that€isŠ ¶,ö(- Šguaranteed€by€any€federal,€state€or€local€governmentŠ €%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ą(iii)ą0` €%` €%ąExcept€as€Regs€provide,€non„recourse€loans€on€which€no€one€is€personallyŠ ’Ņ Šliable€for€repayment€if€the€amount€cannot€be€convertible€to€an€ownershipĻinterest€and€borrowed€from€a€person€unrelated€to€the€borrower.€(Reg€ššĻ1.465„27(b)(3)).Š €%€% ŠĢą0 ° ąą  ą2.€ą0` °€%°€%ąņ ņTiming€&€Reporting€of€Rental€Incomeó 󀄀Gross€income€includes€all€amounts€received€asŠ  _ Šrent,€or€any€payment€taxpayer€receives€for€occupation€or€use€of€the€property.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(a)ą0ø €%€%ąKey€question€„€is€taxpayer€cash€basis€or€accrual€basis?€€If€cash€basis€„€rentalŠ Ż   Šincome€reported€when€actually€or€constructively€received€irrespective€of€whenĻearned.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0` €%` €%ąDefinition€„€income€is€ņ ņconstructively€earnedó ó€when€it€becomes€accessibleŠ Į  Šeither€by€deposit€or€credit€to€a€bank€account.Š €%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą0ø ` €%` €%ą(ii)ą0ø €%ø €%ąDefinition€„€ņ ņaccrual€basisó ó€taxpayer€reports€income€when€earned€ratherŠ ? Šthan€when€received.€Expenses€are€likewise€deducted€when€they€areĻincurred€„€not€when€paid.Š €%€% Šą0 ° ąą0°€%°€%ąŠ €%€% Šą0 ° ąą0°€%°€%ąą ` ą(b)ą0ø €%€%ąAdvance€Rent€„€amount€received€before€the€time€period€covered€and€is€includedŠ ę& Šin€income€in€the€year€received€despite€the€method€of€accounting€or€the€periodĻcovered.€[Reg.šš1.61„8(b)]Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(c)ą0ø €%€%ąSecurity€deposits€„€Not€included€in€income€when€received€if€taxpayerššs€intentionŠ ŠŹ Šis€to€return€the€security€deposit€to€the€tenant€when€the€lease€ends€[IndianapolisĻPower€&€Light€Company,€65€AFTR€2d€90„394,€(1990)].€An€exception€occurs€ifĻthe€tenant€fails€to€live€up€to€the€terms€of€his€lease;€in€that€instance€the€taxpayerĻwill€include€in€income€the€amount€kept.€€When€or€if€money€called€a€securityĻdeposit€is€designated€as€a€final€payment€of€rent,€it€is€effectively€consideredĻadvance€rent€and€thus€included€in€income€when€received.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(d)ą0ø €%€%ąPayment€for€canceling€a€lease€„€amounts€paid€to€cancel€a€lease€are€consideredŠ Ņ!! Šrent.€Payment€is€included€in€income€the€year€received€regardless€of€accountingĻmethod€used.€(Reg.šš1.61„8(b))Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(e)ą0ø €%€%ąExpenses€paid€by€tenant€„€if€a€landlordššs€expenses€are€paid€by€a€tenant,€theŠ v%¶!% Špayments€are€deemed€rental€income€and€included€in€income€(Reg.šš1.61„8(b)).€IfĻthe€expense€qualifies€as€deductible€rental€expense€it€may€be€deducted.€(Example:Ļtenant€pays€water€and€sewage€bill€and€deducts€the€amount€from€his€rent.€Terms€ofĻlease€state€that€tenant€does€not€have€to€pay€the€bill.€Landlord€will€include€the€billĻpaid€and€amounts€received€as€rent€payment€in€his€rental€income.€Landlord€canĻdeduct€the€payment€made€by€the€tenant€as€rental€expense.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(f)ą0ø €%€%ąProperty€or€services€„€if€instead€of€money€for€rent,€the€taxpayer€receives€propertyŠ ¾,ž(- Šor€services,€the€fair€market€value€of€the€property€or€services€must€be€included€inĻrental€income.€(Example:€tenant€is€a€painter€who€offers€to€paint€landlordššs€rentalĻproperty€instead€of€paying€2€months€of€rent.€Landlord€accepts€offer€and€includesĻin€rental€income€the€amount€tenant€would€have€equivalently€paid€for€the€2€monthsĻof€rent€and€can€deduct€the€amount€as€a€valid€rental€for€painting€her€property.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(g)ą0ø €%€%ąLease€with€an€option€to€buy€„€if€the€rental€agreement€gives€the€tenant€the€right€toŠ 6 v Šbuy€the€rental€property,€the€payment€received€is€classified€as€rental€income.€TheĻtenant€who€chooses€to€buy€the€property€would€have€payments€received€after€theĻdate€of€sale€considered€part€of€the€selling€price.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(h)ą0ø €%€%ąRental€of€property€also€used€as€home.€„€the€fewer€than€15€days€rule€„€if€taxpayerŠ Ć   Šrents€property€that€also€considered€their€home€and€it€is€rented€fewer€than€15€daysĻduring€the€tax€year€the€rent€received€is€not€included€in€income€and€the€rentalĻexpenses€can€not€be€deducted€[IRC.šš280A(g)].€Interest,€taxes,€casualty€and€theftĻlosses€allowable€for€non„rental€property€are€deductible€on€Schedule€A€of€FormĻ1040.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ąœńuń(I)ńuńńuń(i)ńuń.›ą0ø €%€%ąPartial€interest€„€if€a€partial€interest€in€a€rental€property€is€owned€the€taxpayerŠ "b Šmust€proportionately€report€the€income€derived€from€the€property.€ą0Š ø €%ø €%ąą0(#Š €%Š €%ąŠ K(#€%(#€% ŠĢą0 ° ąą  ą3.€ą0` °€%°€%ąņ ņRental€Expensesó 󀄀Rental€Expensesņ ņŠŻ` €%` €% Šó óĢą0 ° ąą0°€%°€%ąą ` ą(a)ą0ø €%€%ąWhen€to€deduct€„€rental€expenses€are€deducted€in€the€year€paid€Š²ņø €%ø €% ŠĢą ° ąą0  ąą ` ą(b)ą0ø €%€%ąVacant€rental€property€„€ordinary€and€necessary€expenses€incurred€in€theŠ „Ä Šmaintenance€,€management€and€conservation€of€vacant€property€held€for€rentalĻpurposes€is€tax€deductible.€The€exception€is€for€the€period€of€time€the€property€isĻvacant€the€taxpayer€ņ ņcannotó ó€deduct€any€loss€of€rental€income.Š?ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąPre„rental€expenses€„€from€the€time€rental€property€is€made€available€for€rent,€aŠ T Šdeduction€for€ordinary€and€necessary€expenses€for€management,€conservation€orĻmaintenance€is€allowed.Š ø €%ø €% Šą ° ąą  ąą ` ąĢą ° ąą0  ąą ` ą(d)ą0ø €%€%ąDepreciation€„€rental€property€can€be€depreciated€when€it€is€ready€and€availableŠ ø"ų" Šfor€rent.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(e)ą0 ø ąExpenses€for€rental€property€that€is€sold€„€ordinary€and€necessary€expensesŠ s%³!% Šincurred€in€management,€conservation€and€maintenance€of€rental€property€areĻdeductible€until€the€sale€of€the€property.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(f)ą0 ø ąPartial€interest€„€the€part€of€expenses€paid€by€taxpayer€for€a€partial€ownership€inŠ )W%) Šrental€property€can€be€properly€deductedŠ ø €%ø €% ŠĢĢŠ »,ū(- Šą0 ° ąC.ą0°€%°€%ąImprovements€and€RepairsŠĄ€%€% ŠĢą0 ° ąą0°€%°€%ą1.ą0` €%€%ąRepairs€„€cost€of€repairs€can€be€deducted€while€cost€of€improvements€cannot.Š’Ņ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąa.ą0ø ` €%` €%ąRepairs€just€keep€property€in€good€working€order€without€adding€materially€to€theŠ d¤ Šproperty€or€extending€its€life.€Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąb.ą0ø ` €%` €%ąExamples€„€replacement€of€broken€windows,€fixing€gutters,€floors,€leaks,Š  _ Šplastering€walls€and€repainting€inside€or€outside€of€propertyŠ ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąc.ą0ø ` €%` €%ąIf€repairs€are€part€of€a€more€extensive€remodeling€or€actually€involve€restorationŠ Ś   Šthen€the€project€is€considered€an€improvement.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ąImprovements€„€add€considerable€value€to€the€property€in€contrast€to€repairs€discussedŠ •Õ  Šabove.€These€costs€that€must€be€capitalized€and€then€depreciated€as€per€IRC€168.€ĻExamples€of€improvements€include:Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(a)ą0ø ` €%` €%ąAdditions€to€property€„€new€bedrooms,€bathrooms,€decks,€a€garage,€a€porch,€aŠ 9y Špatio.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(b)ą0ø ` €%` €%ąYard,€lawn€and€grounds€€„€swimming€pool,€sprinkler€system,€fence€or€retainingŠ ō4 Šwall,€sidewalk€or€walkway,€driveway,€landscaping.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(c)ą0ø ` €%` €%ąHeating€and€air€conditioning€„€central€air€conditioning,€heating€system,€furnaces,Š Æļ Šcentral€humidifier,€filtration€systems.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(d)ą0ø ` €%` €%ąPlumbing€„€water€heater,€filtration€system,€water€softening€systemsŠjŖø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(e)ą0ø ` €%` €%ąInterior€improvements€„€modernizing€or€updating€of€kitchen,€adding€built„inŠ <| Šappliances,€new€flooring,€wall„to„wall€carpeting€.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(f)ą0ø ` €%` €%ąInsulation€„€adding€insulation€to€attics,€walls,€floors€and€pipes.Š÷7ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(g)ą0ø ` €%` €%ąAdditional€miscellaneous€improvements€„€new€roof,€upgrades€of€wiring,€securityŠ É! ! Šsystem,€storm€windows,€storm€doors€satellite€dishes€Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(h)ą0 ø ąDemolition€expenses€or€losses€must€be€capitalized€and€added€to€the€basis€of€theŠ „$Ä $ Šland€(IRC€šš280B(1)).Š ø €%ø €% ŠĢą ° ąą  ąą ` ąœńuń(I)ńuń›œńuń(i)ńuń›ą0 ø ąLong€term€contracts€for€improvement€must€be€accounted€for€under€theŠ ?'#' Šš špercentage€of€completionšš€method.€(IRC€šš€460),€however,€exceptions€exist€forĻ(1)€home€construction€contracts,€(2)€contracts€completeable€within€two€years€ofĻstarting€date€where€taxpayerššs€three€previous€years€receipts€donššt€exceed€$10Ļmillion.Š ø €%ø €% ŠĢŠ µ,õ(- Šą0 ° ąC.ą0°€%°€%ąBasis€and€Depreciation.€€Basis€for€depreciation€(when€a€personal€asset€has€been€converted€toŠ Ą Šbusiness€use)€is€the€lower€of€the€adjusted€basis€at€the€date€of€conversion€or€the€fair€market€valueĻof€the€asset€being€converted€at€the€time€it€is€converted.€[Reg.€œ1.168ńuń(I)ńuńńuń(i)ńuń„4(b)]›Š €%€% ŠĢą0 ° ąą0°€%°€%ą1.ą0` €%€%ąWhat€Type€of€Property€Can€Be€Depreciated?€In€general,€€property€should€meet€theŠ d¤ Šfollowing€requirements:Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(a)ą ø ąThe€taxpayer€is€the€owner€of€the€propertyŠ _` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(b)ą0ø ` €%` €%ąIt€is€used€in€income„producing€sort€of€activity,€such€as€a€rental€property,€or€in€aŠ ń 1  ŠbusinessŠ ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(c)ą0ø ` €%` €%ąProperty€has€a€useful,€finite€lifeŠ¬ģ ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(d)ą0ø ` €%` €%ąProperty€life€should€last€more€than€a€yearŠ~¾ ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(e)ą0ø ` €%` €%ąProperty€not€excepted€„€property€placed€in€service€and€disposed€of€in€same€year€„Š P Šalso€section€197€intangiblesŠ ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(f)ą0ø ` €%` €%ą€Section€179€deduction€not€properly€available€for€property€being€used€to€yield€realŠ  K Šestate€rental€income.€[IRC€179(d)(1)]Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ąACRS:€15,€18,€19€year€real€property€with€optional€straight€line€recovery€periods€of€(15,Š Ę Š35,€45);€(18,€35,€45)€or€(19,€35,€45)€year€periods.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą3.ą0` €%€%ąMACRS:€15€year€MACRS€class:€Property€with€class€life€of€20€„€25€years€for€non„Š Į Šbuilding€land€improvements€(examples:€sidewalks,€roads,€culverts,€cell€phone€towers).€ĻDepreciated€via€the€straight„line€method€(IRC€šš€168(b)(3)(G)€&€(H).Š ` €%` €% ŠĢą0 ° ąD.ą0°€%°€%ąMIXED„USE€PROPERTY€/€VACATION€€€HOME.€€Definition€„€a€residence€that€is€usedŠ %e Špersonally€and€rented€out€by€the€owner.€€€Example„€vacation€home€used€personally€by€owner€asĻwell€as€being€rented€out€for€a€portion€of€the€tax€year.€IRC€280A€€limits€expenses€that€may€beĻproperly€deducted€dependent€on€the€personal€use€aspect.Š €%€% ŠĢą0 ° ąą0°€%°€%ą1.ą0` €%€%ąRental€income€„€all€rental€income€is€reported€on€Schedule€E.€€The€exception€here€occursŠ ²"ņ" Šwhen€the€property€is€rented€for€14€days€or€less€„€the€expenses€are€then€not€deducted€andĻthe€income€is€not€reported.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ąMortgage€interest€„€Personal€use€portion€deducted€on€Schedule€A.€Portion€resulting€fromŠ V&–"& Šrental€activity€is€deducted€on€Schedule€E.€€Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą3.ą0` €%€%ąWhen€the€dwelling€unit€is€used€as€a€home,€the€personal„use€amount€(treated€as€secondŠ )Q%) Šhome)€is€deductible€on€Schedule€A€and€the€amount€from€rental€activity€is€deducted€onĻSchedule€E.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą4.ą0` €%€%ąProperty€taxes€„€for€personal€use€property€taxes€are€deducted€on€Schedule€A.€For€rentalŠ µ,õ(- Šproperty,€rental€activity€amounts€are€deducted€on€Schedule€E.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą5.ą0` €%€%ąFor€dwelling€unit€used€as€home€rental€activity€portion€is€deducted€on€Schedule€E€and€theŠ ’Ņ Špersonal€use€amount€is€deductible€on€Schedule€A.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą6.ą0` €%€%ąExpenses€directly€related€to€the€rental€€„€for€personal€use€property€the€expenses€areŠ M Šnondeductible.€For€rental€property€expenses€are€deducted€on€Schedule€E€and€are€subjectĻto€passive€activity€loss€limits.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą7.ą0` €%€%ąFor€dwelling€unit€used€as€a€home,€expenses€are€deducted€on€Schedule€E€and€also€subjectŠ ń 1  Što€passive€activity€loss€limits.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą8.ą0` €%€%ąOther€rental€expenses€not€deductible€except€for€the€rental€activity€(such€as€maintenance,Š ¬ģ  Šinsurance€and€depreciation)€„€for€personal€use€property€are€nondeductible;€€rentalĻproperty€portion€deducted€on€Schedule€E€€and€subject€to€passive€activity€loss€limits.€TheĻpersonal€use€amounts€are€nondeductible.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą9.ą0` €%€%ąFor€dwelling€unit€used€as€a€home,€amount€due€to€rental€activity€is€deducted€on€ScheduleŠ 9y ŠE,€limited€to€the€gross€rental€amounts,€less€the€other€expense€items€discussed.€TheĻpersonal€use€portion€is€nondeductible.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą10.ą0` €%€%ąThe€Bolton€Decision€and€Rental€Expense€Allocation€ŠŻ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(a)ą0ø ` €%` €%ąExpenses€are€usually€allocated€by€a€rather€formulaic€number€of€days€rented€atŠ Æļ Šwhat€is€considered€a€fair€rental€value€and€this€number€is€divided€by€the€totalĻnumber€of€days€that€the€property€is€occupied.€(Prop.€Reg.€1.280A„3)Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(b)ą0ø ` €%` €%ąThe€Tax€Court€preferred€a€bit€more€of€a€hybrid€method€which€allowed€for€aŠ S“ Šhigher€deduction€for€maintenance€costs€than€the€IRS€was€inclined€to€allow.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(c)ą0ø ` €%` €%ąThe€Boltons€had€mortgage€interest€and€tax€allocated€per€number€of€days€in€theŠ N Šyear€while€their€maintenance€expenses€were€allocated€based€on€days€ofĻoccupation.€The€result€„€low€percentage€of€interest€and€taxes€with€a€higherĻpercentage€of€maintenance€costs€with€the€resultant€aforementioned€higherĻdeduction€for€maintenance€costs.€The€IRS€was€not€pleased.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(d)ą0ø ` €%` €%ąTax€Courtššs€determination€that€the€allocation€method€made€sense€because€taxesŠ „$Ä $ Šand€interest€continuously€accrue€during€the€year.€Maintenance€costs€however€areĻmore€directly€related€to€actual€time€occupied.[Bolton,€77€TC€104€(1981);€affššd.€51ĻAFTR€2d€83„305€(9th€Cir.€1982)]Š ø €%ø €% ŠĢą ° ąą  ą11.ą ` ąMortgage€Interest€Allowabilty€where€Several€Homes€are€owned.Š )Q%) ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(a)ą8ø ` €%` €%ąPersonal€use€„€if€a€home€is€the€second€residence€with€14€days€or€less€ofŠ ć*#'+ Šrental€use,€€the€mortgage€interest€can€be€fully€deducted€on€Schedule€A.Š ø (#ø (# ŠŠ µ,õ(- Šą0 ° ąą0°€%°€%ąą0` €%€%ą(b)ą0ø ` €%` €%ąVacation€home„€qualified€mortgage€interest€is€fully€deductible€if€a€home€is€aŠ Ą Šsecond€residence€and€rental€use€was€more€than€the€requisite€14€days€and€personalĻuse€was€equal€to€not€more€than€the€greater€of€14€days€or€10%€of€rental€days.€TheĻmortgage€interest€is€fully€deductible€even€if€in€fact€is€greater€than€the€incomeĻgained€from€the€rental.€Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(c)ą0ø ` €%` €%ąRental€„€rental€portion€of€interest€expense€goes€on€Schedule€E,€subject€to€passiveŠ 6 v Šactivity€rules.€The€rule€is€that€home€use€is€not€considered€a€residence€and€personalĻportion€of€interest€expense€is€not€deductible€if€the€use€part€is€not€more€than€theĻgreater€of€14€days€or€10%of€rental€days.€Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ą(d)ą0ø ` €%` €%ąThird€residence€„€the€non„rental€portion€of€mortgage€interest€on€ant€other€home€isŠ Ć   Šnondeductible€personal€interest€if€a€taxpayer€owns€two€other€residences.€Š ø €%ø €% ŠĢą0 ° ąE.ą0°€%°€%ąDetermining€whether€Investment€or€Rental€ActivityŠ~¾ €%€% ŠĢą0 ° ąą0°€%°€%ą1.ą0` €%€%ąThe€difference€between€holding€property€for€rental€and€holding€property€for€investmentŠ P Šor€potential€appreciation€has€been€addressed€by€the€tax€Court€in€ņņRiveraóó,€TC€SummaryŠ 9y ŠOpinion€2004„81.€Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ąTaxpayers€involved€preferred€to€rent€only€to€friends€or€fellow€employees€and€did€so€at€aŠ ō4 Šconsiderable€discount€„€deemed€far€less€that€fair€market€rental€value.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą3.ą0` €%€%ąWhen€a€dwelling€is€rented€at€less€than€a€fair€rental€value€it€is€deemed€to€have€been€usedŠ Æļ Šfor€personal€use€rather€for€profit.€The€IRS€disallowed€the€rental€losses€based€on€IRC€183Ļprohibitions€towards€loss€deductions€from€activities€considered€to€be€š šnot€engaged€in€forĻprofit.ššŠ ` €%` €% ŠĢą0 ° ąą0°€%°€%ą4.ą0` €%€%ąThe€Tax€Court,€however,€in€determination€of€whether€there€existed€a€profit€motive,€hadŠ <| Štaken€into€consideration€the€propertyššs€obvious€€appreciation€in€value€as€a€factor.€TheĻproperty€had€in€fact€doubled€in€value€since€it€had€been€acquired.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą5.ą0` €%€%ąThe€taxpayers€in€ņņRiveraóó€were€held€to€be€entitled€to€properly€take€the€deduction€forŠ ą   Šexpenses€which€allocated€between€the€nondeductible€rental€activities€and€the€allowableĻinvestment€portion€since€the€finding€was€the€property€was€held€primarily€for€investmentĻpurposes.€Š ` €%` €% ŠĢą0 ° ąF.ą0°€%°€%ąPASSIVE€€LOSS€€LIMITS€€ON€€RENTAL€PROPERTIESŠm%­!%€%€% ŠĢą0 ° ąą  ą1.ą0` °€%°€%ąPassive€Losses€„€rental€real€estate€is€considered€a€passive€activity€despite€the€taxpayerššsŠ ?'#' Šamount€of€participation€in€the€rental€activity,€unless€the€taxpayer€(subject€to€twoĻexceptions,€š šreal€estate€professionalšš€and€š šspecial€loss€allowancešš€set€forth€below).Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą2.€ą0` €%€%ąSection€469€limits€the€deductions€for€passive€activity€losses€to€the€income€derived€fromŠ ć*#'+ Špassive€activity.€(IRC€šš469(b))€and€losses€that€are€not€allowed€are€carried€forward€toĻfuture€tax€years.€(IRC€šš469(f)).Šµ,õ(-` €%` €% Š‡ą0 ° ąą0°€%°€%ą3.ą0` €%€%ąPassive€activity€losses€are€ņņfirstóó€subject€to€rules€regarding€at„risk€activities.€The€amount€ofŠ Ą Šdeductible€losses€from€holding€most€real€property€placed€in€service€after€1986€are€limitedĻby€the€š šat„risk€rules.šš€€€However,€losses€which€are€not€allowed€because€of€š šat€risk€rulesššĻare€still€carried€forward€until€the€taxpayers€š šat€riskšš€amount€increases,€at€which€time€itĻmay€be€deducted€from€the€activity€which€generated€the€loss.€Š ` €%` €% ŠĢą0 ° ąą  ą4.ą0` °€%°€%ąFor€Limitations€on€Passive€Activity€Losses,€€Use€Form€8582€for€computation€of€passiveŠ 6 v Šlosses€allowed€or€disallowed€losses;€as€well€as€Computation€of€rental€real€estate€„activeĻparticipation€special€loss€allowances,€and€to€Allocate€of€activities€related€to€passive€lossĻallowances€as€well€as€suspended€loss€carry€forwards.€Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą5.ą0` €%€%ąForm€8582€not€required€if€(a)€There€arenššt€any€unallowed€losses€from€any€passiveŠ Ć   Šactivities€from€a€prior€year,€(b)€The€taxpayers€lived€apart€from€each€other€if€they€areĻmarried€filing€separately,€(c)€There€are€no€current€or€prior€year€unallowed€credits€fromĻpassive€activities,€(d)€There€is€$100,000€or€less€in€modified€adjusted€gross€income€(orĻ$50,000€or€less€if€€married€filing€separately),€or€(e)€there€no€holdings€in€rental€real€estateĻas€either€a€beneficiary€of€an€estate€or€trust€or€rental€real€estate.Š ` €%` €% ŠĢą0 ° ąą  ą6.ą0` °€%°€%ąPassive€Losses€„€rental€real€estate€is€considered€a€passive€activity€despite€the€taxpayerššsŠ "b Šamount€of€participation€in€the€rental€activity,€unless€the€taxpayer€(subject€to€twoĻexceptions,€š šreal€estate€professionalšš€and€š šspecial€loss€allowancešš€set€forth€below).Š ` €%` €% ŠĢą0 ° ąG.ą0°€%°€%ąSPECIAL€EXCEPTION€TO€PASSIVE€€LOSS€€LIMITS€€ON€€RENTAL€PROPERTIESŠĘ€%€% ŠĢą0 ° ąą0°€%°€%ą1.ą0` €%€%ąWhile€rental€real€estate€is€usually€considered€a€passive€activity,€an€amount€of€up€toŠ ˜Ų Š$25,000€may€be€deducted€each€tax€year€AGAINST€income€from€income€deemed€non„¼passive€such€wages€or€portfolio€income€as€noted€in€IRC€œ469ńuń(I)ńuńńuń(i)ńuń.›Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ąThe€criteria€necessary€for€taking€the€loss€allowances€are:€Š<|` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąa.ą0ø ` €%` €%ąActive€participation€or€at€least€10%€ownership€of€the€rental€property€andŠ N Šš šsubstantial€involvementšš€in€management€of€the€rentalŠ ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąb.ą0ø ` €%` €%ąCanššt€be€a€limited€partner€„ltd€partner€doesnššt€meet€the€test€for€active€participationŠÉ! !ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąc.ą0ø ` €%` €%ąNetting€income€and€losses€from€active€participation€in€all€rental€activities€toŠ ›#Ū# Šdetermine€valid€amount€of€lossŠ ø €%ø €% ŠĢą0 ° ąą0°€%°€%ą3.€ą0` €%€%ąThat€Special€Allowance€and€Offsetting€CreditsŠV&–"&` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąa.ą0ø ` €%` €%ąA€credits€from€active€participation€rental€activities€can€be€used€by€taxpayers€toŠ ((h$( Šoffset€non„passive€unrelated€income€induced€tax€liabilities.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąb.ą0ø ` €%` €%ąCalculation:€convert€the€$25,000€to€a€tax€amount€based€on€the€marginal€tax€rate€ofŠ ć*#'+ Šthe€taxpayer€Š ø €%ø €% ŠŠ µ,õ(- Šą0 ° ąą0°€%°€%ą4.ą0` €%€%ąSpecial€Loss€Allowance€Phase„€Out€:€AGI€GuidelinesŠĄ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąa.ą0ø ` €%` €%ąSpecial€Loss€Allowance€is€Phased€out€at€a€rate€of€50%€of€adjusted€gross€income,Š ’Ņ Šbeginning€when€adjusted€gross€income€€exceeds€$100,000€(or€$50,000€for€marriedĻfilling€separately.)€Allowance€zeroes€out€when€you€hit€$150,000.Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąb.ą0ø ` €%` €%ąWhat€is€modified€AGI?€€For€this€situation€modified€AGI€is€equivalent€to€AGIŠ 6 v Šwithout€any€of€the€following€items:Š ø €%ø €% ŠĢą ° ąą  ąą ` ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0  ąany€net€passive€lossŠń 1 €%€% ŠĢą ° ąą  ąą ` ąą ø ą(ii)ą0  ątaxable€social€security€and€tier€1€railroad€benefitsŠĆ  €%€% ŠĢą ° ąą  ąą ` ąą ø ą(iii)ą0  ądeduction€for€fees€and€tuitionŠ•Õ €%€% ŠĢą ° ąą  ąą ` ąą ø ą(iv)ą0  ądeduction€for€student€loan€interest€Šg§ €%€% ŠĢą ° ąą  ąą ` ąą ø ą(v)ą0  ądeduction€for€IRA€and€other€retirement€plan€contributions€Š9y€%€% ŠĢą ° ąą  ąą ` ąą ø ą(vi)ą  ądeduction€for€domestic€production€activitiesŠ  K Š€Ģą ° ąą  ąą ` ąą ø ą(vii)ą0  ąpublicly€traded€partnership€overall€lossŠŻ€%€% ŠĢą ° ąą  ąą ` ąą ø ą(viii)ą0  ąinterest€income€exclusion€for€Series€EE€bonds€for€higher€expensesŠÆļ€%€% ŠĢą ° ąą  ąą ` ąą ø ą(ix)ą0  ąexcluded€income€under€an€employerššs€adoption€assistance€programŠĮ€%€% ŠĢą ° ąą  ąą ` ąą ø ą(x)ą0  ąone„half€self„employment€tax€deductionŠS“€%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą0ø ` €%` €%ą(xi)ą0ø €%ø €%ąrental€or€passive€income€loss€allowed€due€to€material€participation€by€aŠ %e Šreal€estate€professionalŠ €%€% ŠĢą0 ° ąH.ą0°€%°€%ąREAL€ESTATE€PROFESSIONAL€EXCEPTION€TO€PASSIVE€€LOSS€€LIMITS€€ON€€RENTALŠ ą   ŠPROPERTIES;€LOSSES€ARE€NOT€PASSIVEŠ €%€% ŠĢą0 ° ąą0°€%°€%ą1.ą0` €%€%ą$25,000€active€rental€loss€limitation€does€not€apply€to€those€professionals€who€materiallyŠ ›#Ū# Šparticipate€in€real€estate€activities.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ą50%€or€more€of€personal€services€were€performed€in€real€property€trades€or€businesses€inŠ V&–"& Šwhich€the€taxpayer€is€considered€to€have€materially€participatedŠ ` €%` €% ŠĢą0 ° ąą0°€%°€%ą3.ą0` €%€%ą750€hours€or€more€of€services€spent€in€trades€or€businesses€in€which€materialŠ )Q%) Šparticipation€is€performed€by€the€taxpayer.Š ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąAll€real€estate€projects€or€business€are€treated€as€combined€to€form€a€singleŠ Ģ+ (, Šactivity.Šµ,õ(-ø €%ø €% Š‡ą ° ąą  ąą ` ą(b)ą0 ø ąAn€election€is€made€by€filing€a€declaration€that€the€taxpayer€qualifies€for€the€taxŠ Ą Šyear€and€is€making€an€election€under€IRC€šš469(c)(7)(A)Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąExamples€of€trades€or€businesses€include:€property€development,€construction,Š {» Šconversion,€rental€operations€management,€leasing,€or€brokerage.€€Where€theĻtaxpayer€is€an€employee€of€such€a€business,€such€employee€must€be€an€owner€ofĻgreater€than€5%€of€the€business.Š ø €%ø €% ŠĢą0 ° ąI.ą0°€%°€%ąREAL€ESTATE€DEALERS€EXCEPTION€TO€PASSIVE€€LOSS€€LIMITS€€ON€€RENTALŠ  H ŠPROPERTIES;€LOSSES€ARE€NOT€PASSIVEŠ €%€% ŠĢą ° ąą  ąA.ą ` ąReal€Property€bought€is€treated€as€inventory€and€not€depreciable.Š Ć   ŠĢą ° ąą  ąB.ą0 ` ąSales€Expenses€„€Dealer€can€treat€sales€expenses€as€ordinary€business€deductions€underŠ •Õ  ŠIRC€šš€167.Š ` €%` €% ŠĢ.ą ° ąą  ąC.ą0 ` ąSchedule€C€used€to€report€rental€activities€as€income€or€(loss)€from€a€trade€or€business€„€ifŠ P Šthe€rental€houses€are€owned€as€inventory€by€a€dealer.Š ` €%` €% ŠĢą ° ąą  ąD.ą0 ` ąNon„dealers€will€not€be€treated€as€dealers€simply€because€land€is€subdivided€into€lots,€andŠ  K Šwith€the€lots€held€for€seal€to€customers€if€the€investor€can€show:Š ` €%` €% ŠĢą ° ąą  ąą ` ą1.ą0 ø ąNo€part€of€the€same€land€was€held€primarily€for€sale€to€customers.ŠĘø €%ø €% ŠĢą ° ąą  ąą ` ą2.ą0 ø ąSubstantial€Improvements€are€not€made€to€each€lot€as€it€is€sole€(unlessŠ ˜Ų Šimprovements€are€REQUIRED€for€marketability);€ANDŠ ø €%ø €% ŠĢą ° ąą  ąą ` ą3.ą0 ø ąHas€owned€the€land€for€5+€years€or€acquired€it€by€inheritance€(IRC€šš€1237(a)).ŠS“ø €%ø €% ŠĢą ° ąą  ąE.ą0 ` ąEven€where€a€non„dealer€subdivides€more€than€five€parcels€in€the€same€tract,€5%€of€theŠ %e Šgain€from€the€6th,€7th,€8th,€parcels€will€constitute€ordinary€gain€(IRC€šš1237(b)(1)).Š ` €%` €% ŠĢą0 ° ąJ.ą0°€%°€%ąFor€Dealers€And€Professionals,€Non€Passive€Losses€Generated€Are€Net€Operating€Losses.Šą  €%€% ŠĢą ° ąą  ą1.ą0 ` ąRecent€legislation€allows€small€businesses€to€use€extended€3,4,5€year€carry€back€periodsŠ ²"ņ" Šfor€2008€net€operating€losses€under€(IRC€šš172(b)).€€Small€business€is€defined€as€aĻcorporation€or€partnership€that€meets€a€$15€million€gross€receipts€test€for€the€tax€year€inĻwhich€the€loss€arose.€Sole€proprietors€can€meet€the€test€when€tested€as€if€they€were€aĻcorporation.Š ` €%` €% ŠĢą ° ąą  ą2.ą0 ` ąFor€2009€several€revenue€procedures€clarify€the€rules€on€NOLs,€including€€€Rev€ProcŠ ((h$( Š2009„19€and€Rev€Proc€2009„26.Š ` €%` €% ŠĢą0 ° ąK.ą0°€%°€%ąSOME€DIFFERENT€RULES€FOR€NON„PROFITSŠć*#'+€%€% ŠĢą ° ąą  ą1.ą0 ` ąProperty€leased€to€non„profits€have€special€recovery€periods.Šµ,õ(-` €%` €% Š‡ą ° ąą  ą2.ą ` ąProperty€financed€by€tax„exempt€industrial€development€bonds.Š Ą ŠĢĢņ ņŌ‡č(Ž čXX7ŌIV.ó óą@¬¬7ģąņ ņDISPOSALó óˆŠ {» ŠŌ#†X7X čč(Žą#ŌĢą ° ąA.ą  ąSale€Producing€a€Gain€or€LossŠ ć# ŠĢą ° ąą  ą1.ą0 ` ąLong€term€capital€gains€(IRC€šš1222)€are€for€property€held€more€than€one€year.€OtherwiseŠ µ õ Šthe€gain€is€short€term€gain.Š ` €%` €% ŠĢą ° ąą  ą2.ą0 ` ąShort€Term€Netting€is€the€process€where€by€short„term€gains€and€losses€are€differencedŠ p °  Šfrom€each€other€to€produce€a€net€short€term€gain€or€loss.€(IRC€šš1222(5)€&€(6))Š ` €%` €% ŠĢą ° ąą  ą3.ą0 ` ąLong€Term€Netting€is€the€process€where€by€long„term€gains€and€losses€are€differencedŠ +k  Šfrom€each€other€to€produce€a€net€short€term€gain€or€loss.(IRC€šš1222(7)€&€(8))Š ` €%` €% ŠĢą ° ąą  ą4.ą0 ` ąIf€Long€Term€gains€are€greater€than€are€greater€than€a€net€short€term€capital€loss,€the€longŠ ę& Šterm€capital€gain€is€decreased.€(IRC€šš1222(11))Š ` €%` €% ŠĢą ° ąą  ą5.ą0 ` ąNet€Capital€gains€are€currently€set€at€a€maximum€rate€of€15%.(IRC€šš1(H)(1)(B)&(C))Š”į` €%` €% ŠĢą ° ąą  ą6.ą0 ` ąNet€Capital€gains€for€the€portion€of€gain€which€is€un„recaptured€gain,€is€25%.€Š s³ ŠUnrecaptured€gain€is€the€gain€against€which€straight€line€depreciation€was€taken.€€TheĻadjusted€bases€minus€the€purchase€price€is€generally€gain€which€is€not€recaptured€atĻordinary€rates,€but€which€is€referred€to€as€š šunrecapturedšš€gain€which€is€taxed€at€25%.Š ` €%` €% ŠĢą ° ąą  ą7.ą ` ąNet€Capital€gains€for€collectibles€is€28%€.(IRC€šš1(H)(1)(B)&(C))Š @ ŠĢą ° ąą  ą8.ą0 ` ąShort€term€capital€losses€are€applied€first€against€gains€in€the€28%€group,€then€againstŠ Ņ Šlosses€in€the€25%€group€and€finally€reduces€gains€from€the€15%€group.€€(The€5%€group€isĻnot€discussed).(€IRC€šš1211)Š ` €%` €% ŠĢą ° ąą  ą9.ą0 ` ąCapital€losses€are€allowed€only€against€capital€gains€except€for€an€annual€allowance€ofŠ v!¶  Š$3000.00.Š ` €%` €% ŠĢą ° ąą  ą10.ą0 ` ąCapital€loss€carryforwards,€regardless€of€group,€over€net€long„term€capital€gain,€become€aŠ 1$q # Šshort€term€capital€loss€in€any€succeeding€year€(€IRC€šš1212(b)(1)(A)Š ` €%` €% ŠĢą ° ąą  ą11.ą0 ` ąNet€long€term€capital€loss€carryforwards,€less€short€term€capital€gain€shall€be€a€net€long„Š ģ&,#& Šterm€capital€gain€in€any€succeeding€year€(€IRC€šš1212(b)(1)(B)Š ` €%` €% ŠĢą ° ąBą  ąDepreciation€Recapture€1250(a)Š §)ē%) ŠĢą ° ąą  ą1.ą0 ` ąUpon€sale,€a€portion€of€the€gain€may€be€treated€as€ordinary€gain,€if€it€was€not€depreciatedŠ y+¹'+ Šunder€the€š šstraight€linešš€method.€(IRC€šš€1250(b)Šb,¢(,` €%` €% Š‡ą ° ąą  ą2.ą0 ` ąThe€š šstraight€linešš€method,€for€property€to€which€(IRC)€section€168€applies€using€theŠ Ą Šapplicable€recovery€period.Š ` €%` €% ŠĢą ° ąą  ą3.ą0 ` ąWith€MACRS,€real€property€is€depreciated€using€a€straight„line€method.€€IRC€šš168(b)(3).Š{»` €%` €% ŠĢą ° ąCą0  ąAt€Risk€Depreciation€Recapture€IRC€šš€465(e).€Where€the€taxpayers€risk€is€less€than€zero,€(basisŠ M Šhas€been€allowed€to€go€negative€either€due€to€mis„calculation,€oversight,€or€re„adjustment,€theĻtaxpayer€will€realize€an€amount€of€income€from€such€activity€sufficient€to€bring€the€basis€back€toĻzero.€€€IRC€šš€465(e)(1)(A).€€Since€depreciation€reduced€ordinary€income,€at€risk€depreciationĻrecapture€adds€back€ordinary€income.Š €%€% ŠĢą ° ąD.ą  ąCondemnation€IRC€šš1033(a)(2)(E)(ii)Š Ć   ŠĢą ° ąą  ą1.ą0 ` ąReplacement€property€must€be€of€a€like€kind,€rather€than€a€š šsimilar€usešš€rule.€(IRCŠ •Õ  Ššš1033(g)(1)).Š ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąProperty€should€be€held€for€productive€use€in€a€trade€or€business.ŠPø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąProperty€can€be€held€for€investment.Š"bø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąOutdoor€Advertising€Displays€are€treated€as€real€property€for€the€purposes€of€theŠ ō4 ŠIRS€condemnation€rules€(IRC€šš1033(g)(3)(A)Š ø €%ø €% ŠĢą ° ąą  ą2.ą0 ` ąPeriod€of€time€for€obtaining€replacement€propertyŠÆļ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą ø ąBeginning€upon€either:Š Į ŠĢą ° ąą  ąą ` ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0  ąThe€date€of€disposition€of€the€converted€property€(owner€ceases€to€haveŠ S“ Šownership€rights,€orŠ €%€% ŠĢą ° ąą  ąą ` ąą ø ą(ii)ą0  ąThe€earliest€date€that€the€property€owner€learns€of€the€threat€or€imminenceŠ N Šof€requisition€or€condemnation.(IRC€šš1033(a)(2)(B)€œńuń(I)ńuń›œńuń(i)ńuń›Š €%€% ŠĢą ° ąą  ąą ` ą(b)ą ø ąEnding€upon:Š É! ! ŠĢą ° ąą  ąą ` ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0  ąTwo€years€after€the€close€of€the€first€taxable€year€in€which€any€gain€isŠ ›#Ū# Šrecognized,€orŠ €%€% ŠĢą ° ąą  ąą ` ąą ø ą(ii)ą0  ąA€later€date€which€the€Secretary€of€Treasury€may€designate€uponŠ V&–"& Šapplication/request€of€the€taxpayer.(IRC€šš1033(a)(2)(B)€(ii)Š €%€% ŠĢą ° ąE.ą  ąExclusion€of€Gain€upon€sale€of€residence.Š )Q%) ŠĢą ° ąą  ą1.ą0 ` ąSingle€individuals€exclude€no€more€than€$250,000€on€the€sale€of€their€principal€residence,Š ć*#'+ Šwhile€married€couples€can€exclude€up€to€$500,000€€(IRC€šš121)€if€several€tests€are€met:Š ` €%` €% ŠŠ µ,õ(- Šą ° ąą  ąą ` ą(a)ą0 ø ąTime€Ownership€&€Use€Test:€Owned€Property€and€used€it€as€principal€residenceŠ Ą Šfor€two€years€of€the€five€years€immediately€preceding€the€sale.€€The€two€year€useĻneed€not€be€consecutive€use€years.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąFrequency€of€Deduction:€The€exclusion€must€not€have€been€utilized€within€twoŠ d¤ Šyears€prior€to€the€sale€in€question.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąIf€one€spouse€fails€in€the€Time€Ownership€&€Use€Test,€or€the€Frequency€ofŠ  _ ŠDeduction€€Test:€the€EXCLUSION€€will€be€limited€to€the€sum€of€the€exclusionsĻthat€each€spouse€could€use€if€not€married.Š ø €%ø €% ŠĢą ° ąą  ą2.ą0 ` ąSpecial€rule€allows€a€surviving€spouse€to€have€a€$500,000€exclusion€instead€of€theŠ Ć   Š$250,000€exclusion€for€single€taxpayers,ņ ņ€IF€the€surviving€spouse€sells€within€2€years€ofŠ ¬ģ  Šthe€death€of€their€former€spouseó ó.€This€is€for€unmarried€persons€only,€a€re„marriage€willŠ ˜Ų  Šcost€the€loss€of€this€deduction,€and€will€revert€to€the€rule€in€(c)€above€to€yield€a€singleĻ$250,000€exclusion.Š ` €%` €% ŠĢą ° ąą  ą3.ą0 ` ąRest€Home€Occupancy€periods€count€as€living€at€home€if€the€home€is€occupied€at€leastŠ ? Šone€year€during€the€five€year€period€prior€to€sale€of€the€home.Š ` €%` €% ŠĢą ° ąą  ą4.ą0 ` ąDestruction€of€the€Home:€if€the€taxpayersšš€insured€home€is€condemned€or€destroyed,€theŠ ś: Šinsurance€reimbursement€payments€are€excludable€on€the€same€basis€that€gain€would€beĻexcluded.€€Any€excess€gain€may€possibly€be€excluded€under€the€involuntary€conversionĻrules€under€IRC€šš1033€generally.Š ` €%` €% ŠĢą ° ąF.ą  ąCharitable€Contribution€of€Real€PropertyŠ ‡Ē ŠĢą ° ąą  ą1.ą0 ` ąQualified€Conservation€Contribution€can€be€made€under€IRC€šš170(h)€so€long€as€aŠ Y™ Šqualified€property€interest€is€donated€to€a€qualified€organization€exclusively€forĻconservation€purposes.Š ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąQualified€property€interest€includes€a€non„mineral€fee€interest,€remainder€interest,Š ż= Šor€perpetuity€restriction.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąQualified€organization€includes€those€in€IRC€šš€501(c)(3)€or€IRC€šš€170(b).Šø"ų"ø €%ø €% ŠĢą ° ąą  ą2.ą0 ` ąSimple€Donation€of€Real€property€as€an€in„kind€donation€is€subject€to€several€limitationsŠ Š$Ź $ Šand€complications.€€Some€restrictions€on€personal€property€are€relaxed€for€the€donation€ofĻreal€property:Š ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąThe€requirement€to€contribute€a€taypayerššs€complete€interest€in€property€isŠ .(n$( Šrelaxed;€partial€interests€may€be€donated.€(IRC€šš€170€(f)(3)(A))Š ø €%ø €% ŠĢą ° ąą  ąą ` ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0  ąA€remainder€interest€can€be€donated.Šé*)'+€%€% ŠĢą ° ąą  ąą ` ąą ø ą(ii)ą0  ąAn€undivided€interest€(tenancy€in€common)€can€be€donated.€€Beware,€theŠ »,ū(- Šdonation€of€joint€tenancy€property€may€destroy€the€joint€tenancy.Š €%€% ŠĢą ° ąą  ąą ` ąą ø ą(iii)ą  ąAn€interest€that€would€be€deductible€if€transferred€in€trust.Š ’Ņ ŠĢĢą ° ąą  ąą ` ą(b)ą0 ø ąThe€donation€of€the€present€right€to€š šusešš€property€without€conveying€it€isŠ M Šprohibited€from€taking€a€charitable€deduction.€€(IRC€šš170(f)(3)(A).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąLiabilities€associated€with€a€donated€property€which€liabilities€are€assumed€by€theŠ  H Šdonee€will€reduce€the€charitable€contribution€by€the€amount€of€the€liability.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(d)ą0 ø ąGenerally€a€deduction€is€based€upon€the€Fair€Market€Value€for€property€thatŠ Ć   Šwould€otherwise€create€long€term€capital€gain€if€sold€at€its€fair€market€value€onĻthe€date€of€contribution.€(Again€reduced€by€any€liabilities€assumed€by€the€donee).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(e)ą0 ø ąContributed€property€is€still€subject€to€depreciation€recapture€under€IRC€sectionsŠ g§  Š1245€(personal€property),€1250€(depreciable€realty)€&€1252€(farm€land).€€Thus€theĻcontribution€will€be€the€FMV,€reduced€by€any€liabilities€assumed,€and€alsoĻreduced€by€any€recaptured€gain.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(f)ą0 ø ąGifts€of€appreciated€capital€gain€property€results€in€a€reduction€in€the€percentageŠ ō4 ŠAGI€limitations.€€Charities€may€be€50%€charities€and€30%€charities,€with€theĻpercentages€being€the€limitation€on€contribution€deduction€by€the€donor.€€For€giftsĻof€appreciated€capital€gain€property,€the€50%€limit€is€downgraded€to€a€30%€limit.€Ļ(IRC€šš170(b)(1)(C).€€€Gifts€to€30%€charities€are€downgraded€to€a€20%€limit€(IRCĻšš170(b)(1)(D).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(g)ą0 ø ąDonation€of€more€than€$500,€$5,000,€and€$500,000€dollars€involves€increasedŠ S“ Švaluation€responsibility€for€each€increase.€€For€$500„$5000,€a€description€and€anyĻlater€documentation€requests€must€be€complied€with;€for€$5,000„$500,000,Ļinformation€must€be€filed€with€the€return,€an€appraisal€is€obtained€and€any€laterĻrequest€for€the€appraisal€must€be€complied€with;€and€for€donations€greater€thanĻ$500,000,€a€qualified€appraisal€must€be€attached€to€the€return.€€(IRCĻšš170(f)(11)(B)„€(D)).Š ø €%ø €% ŠĢą0 ° ąG.ą0°€%°€%ąForeclosure€or€Repossession€of€a€PropertyŠ›#Ū#€%€% ŠĢą0 ° ąą0°€%°€%ą1.ą0` €%€%ąA€lender€may€foreclose€on€a€mortgage€or€repossess€a€property€if€a€borrower€(buyer)€failsŠ m%­!% Što€make€payments€on€a€loan€that€is€secured€by€the€property.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą2.ą0` €%€%ąOr€the€borrower€may€abandon€the€property€by€voluntarily€transferring€the€property€to€theŠ ((h$( Šlender.Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą3.ą0` €%€%ąA€repossession€occurs€when€a€creditor€takes€back€property€that€secures€a€debt.Šć*#'+` €%` €% ŠĢą0 ° ąą0°€%°€%ą4.ą0` €%€%ąDefinition€:€personal€property€securing€a€debt€is€repossessed,€real€property€is€foreclosed.Šµ,õ(-` €%` €% Š‡ą0 ° ąą0°€%°€%ą5.ą0` €%€%ąComputation€of€gain€or€loss€from€foreclosure€or€repossession€is€the€difference€betweenŠ Ą Šthe€adjusted€basis€in€the€transferred€property€and€the€amount€realized.€Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą6.ą0` €%€%ąThe€amount€realized€is€dependent€on€whether€the€loan€involved€is€recourse€orŠ {» Šnonrecourse.€(See€chart€below)Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ą7.ą0` €%€%ąThe€borrower€may€also€recognize€cancellation€of€debt€income€if€recourse€debt€isŠ 6 v Šredeemed€by€a€repossession€or€foreclosureŠ ` €%` €% ŠĢą0 ° ąą  ą8.ą0` °€%°€%ąIncome€realized€from€the€Cancellation€of€DebtŠń 1 ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(a)ą0ø €%€%ąCOD€„€Cancellation€of€Debt€Income€„€income€realized€when€FMV€of€propertyŠ Ć   Štransferred€is€less€than€the€balance€of€the€loan€in€question€the€income€realized€isĻseparate€from€the€loss€or€gain€realized€from€the€repossession€or€foreclosureą0@3#ø €%ø €%ąŠ ø €%ø €% ŠĢĢŌ*wƒ %ddd Xdd Xdd XX€%X€%wŌŌ,Üdd ŌŌ," dd ŌŌ,Œ dd ŌŌ+  ŌŠ  P ……Šą@=DąTax€ResultˆŠ  “ō ŠŠ  1q Šą@ĖĖ5ģąNon„recourseˆŠ  1q Šą@OOWĆąRecourseˆŠ  1q Šą@    m ąTypeˆŠ  ®ī ŠBorrower€Not€Personally€Liable,Ļregardless€of€property€MarketĻValue.Š  €Ą ŠPersonal€Liability€for€amountsĻless€than€disposal€value€ofĻproperty.Š  €Ą Šą@Ż Ż m ąReportingˆŠ  ż= Š1099A,€Box€5€is€š šnoššŠ  ż= Š1099A,€Box€5€is€š šyesššŠ  ż= Šą@¹ ¹ m ąGain/Loss€ą@@§§: ąˆ¼RealizedŠ  c£  Šą@TT4ģąNo€Gain€or€LossˆĢą@śś.ģąregardless€of€lenders€lossˆŠ  c£" ŠLoss€is€lesser€of€FMV€ofĢą@ĘĘOĆąproperty€or€debt€canceledˆŠ  c£$ Šą@V V m ąCOD€IncomeˆŠ  ą % Šą@@@:ģąN/AˆŠ  ą & Šą@TĆąOrdinary€IncomeˆŠ ą '  Š€ĢĢą0 ° ąą0°€%°€%ąą ` ą(b)ą0ø €%€%ąCOD€„€Exclusions€from€IncomeŠĖ )ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ąœńuń(I)ńuń›œńuń(i)ńuń›ą0` €%` €%ąIncome€not€taxed€if€intended€as€a€giftŠ!Ż+€%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ą(ii)ą0` €%` €%ąBorrower€is€either€bankrupt€or€insolvent€(IRC€108(a)(1)(A)€or€(B))Šo#Æ-€%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ą(iii)ą0` €%` €%ąQualified€farm€debtŠA%!/€%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ą(iv)ą0` €%` €%ąQualified€real€property€business€debtŠ'S#1€%€% ŠĢą0 ° ąą0°€%°€%ąą0` €%€%ąą ø ą(v)ą0` €%` €%ąQualified€principal€residence€indebtednessŠå(%%3€%€% Šą0 ° ąą0°€%°€%ąŠ €%€% ŠĢĢą0 ° ąŠ‰,É(7°€%°€% Šńuńœńuńą0 ° ąą  ą9.ą0` °€%°€%ąMortgage€Forgiveness€Debt€Relief€Act€of€2007€(IRC€šš€108(h))ŠĄ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąFor€Qualified€Principal€Residence€(uses€the€definition€of€IRCŠ ’Ņ Ššš163(h)(B)(3)[relating€to€deductibility€of€acquisition€indebtedness]€byĻsubstituting€ńuńńuń$2ńuń€ńuńmillion€for€$1ńuń€ńuńmillion€($1ńuń€ńuńń uń›ń uńmillion€for€$500,000€for€separate€return)Ļ.€€Must€be€single€principal€residence,€not€second€home,€as€per€IRC€šš121.(IRC€ššĻ108(h)(2)).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąThe€relief€is€for€acquisition€indebtedness,€not€for€amounts€not€qualifying€forŠ  H Šacquisition€indebtedness.€€If€there€is€a€blend€of€acquisition€and€non„acquisitionĻdebt,€only€the€acquisition€portion€is€discharged€(IRC€šš€108(h)(4)).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąInsolvent€taxpayers€going€through€bankruptcy€will€utilize€(IRC€šš108(a)(1)(A)Š ¬ģ  Šrather€than€IRC€šš€108(h).€€Bankruptcy€should€not€have€been€filed€in€order€to€useĻIRC€šš€108(h).€€Insolvent€taxpayers€who€are€not€filing€ń uńbankruptchń uńń uńbankruptcyń uń€should€use€IRCĻšš108(a)(1)(B).Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(d)ą0 ø ąUnder€€(IRC€šš108(h)(1),€the€discharging€taxpayer€must€reduce€his€basis€in€theŠ 9y Šhome€to€the€extent€of€the€indebtedness€discharged,€but€not€below€zero.Š ø €%ø €% ŠĢą ° ąH.ą0  ąAliensŠō4€%€% ŠĢą0 ° ąą  ą1.€ą0` °€%°€%ąFor€income€which€is€not€effectively€connected€with€a€U.S.€trade€or€business,€IRC€šš871(a)Š Ę Šrequires€that€the€income€will€be€subject€to€the€flat€30%€FDAP€tax€rate€(with€an€exceptionĻas€to€the€citizenship€of€the€alien€based€upon€the€treaty€rate€between€the€U.S.€and€theĻAlienššs€home€country).Š ` €%` €% ŠĢą ° ąą  ą2.ą0 ` ąIRC€šš871(d)€enables€the€taxpayer€to€elect€to€be€treated€as€effectively€connected€with€aŠ S“ ŠU.S.€trade€or€business.Š ` €%` €% ŠĢą ° ąą  ą3.ą0 ` ąReal€Property€Purchasers€who€purchase€from€a€non„resident€alien€are€required€toŠ N Šwithhold€10%€of€the€purchase€price.€€Purchase€price€forms€include€(1)€cash,€(2)€otherĻpropertyššs€FMV€or€(3)€assumption€of€seller€liabilities.€€This€requirement€is€subject€to€theĻfollowing€exceptions:Š ` €%` €% ŠĢą ° ąą0  ąą ` ą(a)ą0ø €%€%ąSales€price€is€less€than€$300,000€and€buyer€will€reside€on€the€premises€for€50%€ofŠ ›#Ū# Šthe€time€over€the€succeeding€two€years.Š ø €%ø €% ŠĢą ° ąą0  ąą ` ą(b)ą0ø €%€%ąThe€seller€provides€a€certificate€stating€that€he/she€is€not€a€foreign€personą (# ą.ŠV&–"&ø €%ø €% ŠĢą ° ąą0  ąą ` ą(c)ą0ø €%€%ąThe€seller€provides€an€alternative€certificate€showing€that€a€lesser€amount.€€FormŠ ((h$( Š8288„B€and€IRS€Pub.€515€have€further€details.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(d)ą0 ø ąThe€seller€provides€a€written€notice€establishing€that€no€gain€or€loss€will€beŠ ć*#'+ Šrecognized€on€the€sale€due€either€to€(a)€a€provision€of€the€IRC,€or€(b)€because€theĻseller€has€no€gain.Šµ,õ(-ø €%ø €% Š‡ą ° ąą  ąą ` ą(e)ą0 ø ąThe€property€is€acquired€by€a€governmental€entity.ŠĄø €%ø €% ŠĢą ° ąą  ąą ` ą(f)ą ø ąThe€sale€is€related€to€certain€other€forms€of€interest€in€real€estate.Š ’Ņ ŠĢą ° ąI.ą  ąReal€Estate€ProfessionalsŠ d¤ ŠĢą0 ° ąą  ą1.€ą0` °€%°€%ąStatutory€Independent€Contractor:€Direct€Sellers€and€Real€Estate€Agents€are€twoŠ 6 v Šprofessions€which€have€been€hard€wired€into€the€statute€as€automatically€beingĻindependent€contractors.Š ` €%` €% ŠĢą ° ąą  ą2.ą0 ` ąQualifications€to€be€a€statutory€independent€contractor:ŠŚ  ` €%` €% ŠĢą ° ąą  ąą ` ą(a)ą0 ø ąTaxpayer€Real€Estate€Professional€must€hold€a€valid€real€estate€license.Š¬ģ ø €%ø €% ŠĢą ° ąą  ąą ` ą(b)ą0 ø ąAt€least€90%€of€the€income€of€the€Taxpayer€Real€Estate€Professional€must€beŠ ~¾  Šbased€upon€sales€commissions.Š ø €%ø €% ŠĢą ° ąą  ąą ` ą(c)ą0 ø ąThe€Taxpayer€Real€Estate€Professional€must€have€an€employment€agreementŠ 9y Šstating€that€the€professional€will€not€be€treated€as€an€employee€(Prop.€Reg.€ššĻ31.3508„1(b).Š ø €%ø €% Š€Ģą ° ąą  ą3.ą0 ` ąSelf„employment€tax€„€regardless€of€the€number€of€taxpayer„owned€properties,€rentalŠ Ż Šincome€from€the€real€estate€holdings€are€not€subject€to€self„employment€tax€UNLESS€theĻrentals€are€received€in€business€context€as€a€real€estate€dealer€„€ń uńń uńœń uńń uńseń uńeń uń€IRC€1402(a)(1).Š ` €%` €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(a)ą0ø €%€%ąExample:€Unincorporated€hotel€and€boardinghouse€income€is€subject€to€self„Š Į Šemployment€tax€due€to€the€amount€of€services€usually€provided.€Š ø €%ø €% ŠĢą0 ° ąą0°€%°€%ąą ` ą(b)ą0ø €%€%ąHowever,€€if€no€services€are€provided,€a€real€estate€professional€could€properlyŠ <| Štake€the€deduction€for€unlimited€losses€under€the€750€hour€service€test€still€beĻqualified€to€forego€the€SE€tax€on€his€real€estate€activity.€Š ø €%ø €% ŠĢŠ  ą   Šń uń›ń uńń uńń uń›ń uńń uńĢń uńœń uńńuńĢńuńń uń›ń uńÓšąÓń uńœń uńńuńĢńuńń uń›ń uńŅ,XŅŅ,XŅŃšĄŃŃ,ĄŃą@  1ģąņ ņŌ‡Ü[zÜXX7ŌCurtis€L.€ń uńœń uńHarringtonŌ#†X7XÜÜ[z­9#ŌńuńńuńŌ‡āÆŃ āXX7ŌńuńŌ#†X7X āāÆŃ#8#Ōńuńó óń uń›ń uńń uńń uńˆŠ é ŠŅą,ŅŅą,ŅÓøŽšÓņ ņŌ‡¼&O¼XX7ŌOfficeó ó:€ą  ąHarrington€&€Harrington;€€6300€State€University€Drive,€€Suite€250,€€Long€Beach,€CAŠ a Šą 8 ąą  ą90815;€€€Tel.€(562)€594„9784;€€Fax€(562)€594„4414Ģą 8 ąą  ącurt@patentax.com€ņ ņPATENTAXņņššó óóóą   ąą ų ąhttp://www.patentax.comŠ i= ŠÓfføŽÓĢņ ņÓšŁffÓSpecialtyó ó:ą  ąHigh€Technology€Patent€/€Trademark€/€Intellectual€Property€Law€&€TaxationŠ Å™ ŠÓffšŁÓĢÓšŁffÓņ ņEducationó ó:ą  ąņ ņB.S.€ó óChemistry€„€Auburn€University€(1974)Š  ļ Šą 8 ąą  ąņ ņM.€S.€Electrical€Engineeringó 󀄀California€State€University€Long€Beach€(1990)Š  Ł  Šą 8 ąą  ąņ ņM.S.€Chemical€Engineeringó 󀄀Georgia€Institute€of€Technology€(1977)Š ļ Ć  Šą 8 ąą  ąņ ņJ.D.ó 󀄀University€of€Houston€School€of€Law€(1983)Š Ł ­  Šą 8 ąą  ąņ ņM.B.A.ó 󀄀University€of€Oklahoma€(1985)Š Ć —  Šą 8 ąą  ąņ ņLL.M.€ó óņņTaxationó󀄀University€of€San€Diego€School€of€Law€(1997)Š ­   ŠÓffšŁÓĢÓšŁffÓņ ņAdmittedó óą  ąSupreme€Courts€of€California,€Arizona,€Texas,€&€NevadaŠ ×  Šņ ņto€Practiceó ó:€U.S.€Supreme€Court;ą š ąą H ąU.S.€District€Court,€Central€District€of€CaliforniaŠ ķĮ Šą 8 ąą  ąInternal€Revenue€Service€ą H ąU.S.€Patent€and€Trademark€OfficeŠ ׫ Šą 8 ąą  ąU.S.€Court€of€Appeals€for€the€Federal,€Fifth€&€Ninth€CircuitsĢą 8 ąą  ąCalifornia€Department€of€Real€Estate€„€BrokerĢą 8 ąą  ąLos€Angeles€County€California€EMT„BasicĢą 8 ąą  ąU.S.€Tax€Courtą ˜ ąą š ąą H ąFCC„Commercial€&€Amateur€ExtraŠ sG Šą 8 ąą  ąCertified€by€The€State€Bar€of€California€Board€of€Legal€Specialization:€TaxationĢÓffšŁÓĢÓšŁffÓņ ņLanguagesó óą0  ąJapanese€Language€Proficiency€Examination,€Approved€by€Japan€Foundation,€LevelŠ ­ Š4;€Kanji€Proficiency€Exam€of€the€Japan€Kanji€Aptitude€Testing€Foundation,€passedĻLevel€7,€recognized€by€the€Japan€Ministry€of€Education,€mastery€of€640€kanji;€someĻtechnical€Russian€reading€ability.Š ų%ų% ŠÓffšŁÓĢÓšŁffÓņ ņPatentsó óą  ąPrepared€and€prosecuted€more€than€100€patents,€in€the€electrical€andŠ øŒ Šņ ņPreparedó óą0  ąchemical€technologies;€specialty€areas€include€optics,€fiber€optics,€cryogenicsŠ ¢v Šelectromagnetics,€natural€gas€processing€and€computers,€&€trademark€and€copyrightĻpreparation€and€prosecution.€€Patents€include:€Chemical:€4,957,634;€4,851,077;ĻElectrical:€4,876,892;€4,833,351;€4,837,525;€Mechanical:€4,879,895;€4,906,199;€andĻOptical:€4,919,512;€4,898,468.Š ų%ų% ŠÓffšŁÓĢÓšŁffÓņ ņLitigationó óą0  ąAssociate€counsel€in€patent€matters,€trade€secret€litigation;€Judge€pro€tem,€LongŠ ” h$ ŠBeach€Municipal€Court;€Superior€Court€Mediation€program,€Long€Beach;€Attorney„¼Client€fee€Dispute€Arbitrator,€Long€Beach€Bar€Association;€Patent€Panel,€AmericanĻArbitration€Association.Š ų%ų% ŠÓffšŁÓĢÓšŁffÓņ ņTeachingó óą0  ąAdjunct€Law€Professor,€ņņGolden€Gate€University€School€of€Lawóó,€LL.M.€TaxationŠ Ÿ$s#) ŠProgram;€ņņGeorgia€Institute€of€Technologyó󀄀previously€taught€heat€and€mass€transferŠ ‰%]$* Šlaboratories,€and€analog€and€digital€computer€laboratory.Š ų%ų% ŠÓffšŁÓĢÓšŁffÓņ ņMember:ó óą  ąState€bars€of€California,€Arizona,€Texas€and€Nevada;€Long€Beach€Bar€AssociationŠ Ć'—&- Šą0 8 ąą08ų%8ų%ą(Board€of€Governors,€1994„95);€Orange€County€Bar€Association,€Taxation€Section,Ļ(Co„Chair€Technology€Law€Section€1996);€Past€Member,€Orange€County€Chapter€ofĻCalifornia€Society€of€Enrolled€Agents€„€President€2003„2004;€Fellow,€National€TaxĻPractice€Institute;€California€Bar€Association:€CEB€committee€(1999„2000);€IncomeĻ&€Other€Tax€subcommittee€(Chair€2000„2002);€Taxation€Section€ExecutiveĻCommittee€ń uńœń uń(2002„2005);€Vice€Chair€of€theń uń›ń uńń uńń uń€ń uńœń uńCalifornia€Board€of€Legal€Specializationń uń›ń uńń uńń uńĻTaxation€Advisory€ń uńœń uńCommitteeń uń›ń uńń uńń uń€ń uńœń uń(member€2006„2011).ń uń›ń uńń uńń uńŌ#†X7X¼¼&OĆ:#Ō