Discuss the passive loss rules and the material participation rules as they apply to Donald Trump. Then,
Fantastic news! We've Found the answer you've been seeking!
Question:
Discuss the passive loss rules and the material participation rules as they apply to Donald Trump. Then, discuss the possible scenario where Donald Trump does not participate in the real estate business, but still owns the same assets. What would be the result?
Transcribed Image Text:
During his run for the presidency in the fall of 2016, the first page of Donald Trump's New York State resident tax return for 1995 was mailed anonymously to the New York Times. When the Times subsequently published the first page of President Trump's New York State return, it showed that he reported a loss for the year of nearly $16 million from "rental real estate, royalties, partnerships, S corporations, trusts, etc." Given President Trump's status as a real estate developer and owner, it is likely that a significant portion of this loss originated from rental real estate activities held in partnership form. These partnerships frequently generate losses because they are able to deduct depreciation, interest, and other operating costs in determining their taxable income. President Trump's return also showed that he used the $16 million loss to offset business income of $3.4 million, $6,000 in wages, and $7.4 million in interest he reported earning the same year. For many taxpayers, losses from rental real estate are presumed to be passive losses and therefore may not be used to offset active and portfolio income. So, how was Donald Trump able to use the portion of his $16 million loss attributable to rental real estate to legally shelter his other sources of income? President Trump was likely able to take advantage of the "real estate professional" exception found in §469(c)(6) of the Code. This exception permits individuals that are heavily involved in real property trades or businesses to overcome the presumption that their losses from rental real estate are passive and then go on to establish that their losses are active under one of the material participation tests found in the tax regulations. During his run for the presidency in the fall of 2016, the first page of Donald Trump's New York State resident tax return for 1995 was mailed anonymously to the New York Times. When the Times subsequently published the first page of President Trump's New York State return, it showed that he reported a loss for the year of nearly $16 million from "rental real estate, royalties, partnerships, S corporations, trusts, etc." Given President Trump's status as a real estate developer and owner, it is likely that a significant portion of this loss originated from rental real estate activities held in partnership form. These partnerships frequently generate losses because they are able to deduct depreciation, interest, and other operating costs in determining their taxable income. President Trump's return also showed that he used the $16 million loss to offset business income of $3.4 million, $6,000 in wages, and $7.4 million in interest he reported earning the same year. For many taxpayers, losses from rental real estate are presumed to be passive losses and therefore may not be used to offset active and portfolio income. So, how was Donald Trump able to use the portion of his $16 million loss attributable to rental real estate to legally shelter his other sources of income? President Trump was likely able to take advantage of the "real estate professional" exception found in §469(c)(6) of the Code. This exception permits individuals that are heavily involved in real property trades or businesses to overcome the presumption that their losses from rental real estate are passive and then go on to establish that their losses are active under one of the material participation tests found in the tax regulations.
Expert Answer:
Answer rating: 100% (QA)
The daily responsibilities alone would shock most as they transition into the new role President Trump would have to downgrade to government housing and leave the luxury of Trump Tower behind But perh... View the full answer
Related Book For
Concepts in Federal Taxation
ISBN: 9780324379556
19th Edition
Authors: Kevin E. Murphy, Mark Higgins, Tonya K. Flesher
Posted Date:
Students also viewed these business communication questions
-
The enactment of the passive loss rules has generally diminished the attractiveness of tax shelters as investments. However, rental real estate continues to provide a viable tax shelter for certain...
-
What would be the result (in terms of protein synthesis) if RNA polymerase initiated transcription one base upstream of its normal starting point? Why? What would be the result (in terms of protein...
-
Discuss the factors of production as they apply to Tawse Winery.
-
Problem 9- 3A Estimating and reporting bad debts P2 At December 31, 2013, Hawke Company reports the following results for its calendar year. Cash sales . . . . . . . . . . $ 1,905,000 Credit sales ....
-
Suppose that A and B be events such that P(A) = P(B) = 1/3, and P(A or B) = 1/2. a. Are events A and B mutually exclusive? Explain your answer. b. Determine P(A & B).
-
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan...
-
Mackay Industries sales for the year ended December 31, 2010, were \($1,287,000\) and cost of goods sold amounted to \($707,000.\) Beginning inventory was \($58,000\) and ending inventory was...
-
The accountant for Sierra Corp. prepared the following schedule of liabilities as of December 31, 2011. Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....
-
What are an organization\'s outsourcing decisions and constrained resource decisions? Provide a suitable numerical example of these decisions and explain how quantitative and qualitative...
-
The horizontal pipe shown in Fig. 14.45 has a cross-sectional area of 40.0 cm3 at the wider portions and 10.0 cm2 at the constriction. Water is Hawing in the pipe, and the discharge from the pipe is...
-
What account would debit and credit process fees go under Government.? Explain briefly
-
How might the resurgence of self - governance under the Hasmoneans have affected the personal choices of religious observance? Which sectarian group would you have joined if you were alive then? Why?
-
How can the purchase of a pair of sneakers be seen as an ethical act? Throughout the 1990s, the U.S. shoe and sportswear manufacturer Nike was widely criticized for subcontracting with factories in...
-
How can investors and other third parties trust this information and why is trust so important for the company and our economy? Comment on the auditing process. The auditor has to issue an opinion at...
-
How many statements are correct? Statement 1. An annual time series will never have a seasonal component. Statement 2. A random component can exist in both a stationary time series and a...
-
View and examine the following resources to take notes in the charts above about the ideas presented by the authors about societal gender roles and analyze how the authors convey themes about gender....
-
FX Hedging Is Your Strategy Still Fit For Purpose? Managing currency-related risks is a growing concern for many corporates, given signicant foreign exchange (FX) volatility. Nevertheless, an optimal...
-
(a) Use integration by parts to show that (b) If f and g are inverse functions and f' is continuous, prove that (c) In the case where f and t are positive functions and b > a > 0, draw a diagram to...
-
Return to the facts of problem 48. Assume that Yorgi has a net capital loss of $80,000 from her other capital asset transactions in 2011. What is the effect of the sale of the stock on Yorgis tax...
-
When does a taxpayer realize a loss on a worthless security? What is the amount of realized loss? What rules govern the recognition of a loss on a worthless security? Explain.
-
LO6 Use any print or CATR service to find the following information about the Small Business Jobs Act of 2010: a. The public law number and enactment date b. A reference to the full text of the act...
-
Marsha Solomon, a physiotherapist, opened a practice. The business completed the following transactions: After these transactions, how much cash does the business have to work with? Use T-accounts to...
-
Refer to Exercise 2-3. Which of the transactions of Marsha Solomon, P.T., increased the total assets of the business? For each transaction, identify the asset that was increased or decreased....
-
Assume that Lululemon Athletica Inc. reported the following summarized data at December 31, 2020. Accounts appear in no particular order; dollar amounts are in millions. Prepare the trial balance of...
Study smarter with the SolutionInn App