Real estate ownership raises estate planning complications
Article Abstract:
Tax professionals must know where potential errors may arise from passive activities in relation to inherited rented real estate properties. Since an FMV on the date of the decedent's death dictates the heir's basis in inherited property, the gains or losses realized by beneficiaries who eventually sell the property can be calculated using the new basis. Through pre- and post-mortem planning, however, individuals can avail of the benefits of the basis adjustment. Meanwhile, all rental real estate activities are classified as passive activities despite the material participation of the taxpayer, which translates to 750 hours in real estate activities. Although passive activities losses are subject to deduction restrictions, individuals can offset up to $25,000 of these losses against other ordinary income.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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Deferral election limited to active business assets
Article Abstract:
Two rulings from the IRS indicate that only property used in an active business was qualified for a Sec. 6166 election to defer the payment of estate tax regardless of ownership. Letter Ruling 9634006 demonstrates that real property owned solely for investment was not covered despite the fact that it was held by a corporation engaged in active real estate business. On the other hand, Letter Ruling 9635004 explains that a principal asset in the business of a decedent's partnership qualified for deferral election even though the decedent individually owned the asset. This is in accordance with Revenue Ruling 75-367, where the decedent held land for the construction of homes by a fully owned S corporation. The land and certain other assets he owned related to this business were considered a proprietorship.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1996
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