2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

A real property trade or business is any significant and bona fide sense. Such man- • Any transaction resulting in a tax
real property development, redevelopment, agement decisions include: credit of more than $250,000, if you held
construction, reconstruction, acquisition, • Approving new tenants,
the asset generating the credit for 45 days
conversion, rental, operation, management,
or less.
• Deciding on rental terms,
leasing, or brokerage trade or business.
• Approving capital or repair expendi- See the Instructions for Form 8886 for
Services you performed as an employee are
tures, and
more details and exceptions.
not treated as performed in a real property
trade or business unless you owned more • Other similar decisions.
Tax Shelter Registration
than 5% of the stock (or more than 5% of You are not considered to actively parthe
capital or profits interest) in the em-
Number
ticipate if, at any time during the tax year,
ployer.
your interest (including your spouse’s inclaiming
or reporting any income, deduc-
Complete and attach Form 8271 if you are
terest) in the activity was less than 10% by
If you were a real estate professional for
value of all interests in the activity.
tion, loss, credit, or other tax benefit, from
2004, complete line 43 on page 2 of Schedan
interest purchased or otherwise acquired
ule E.
Modified adjusted gross income. This is in a tax shelter required to be registered
Other activities. The rental of your home your adjusted gross income from Form with the IRS.
that you also used for personal purposes is 1040, line 36, without taking into account:
Form 8271 is used to report the name,
not a passive activity. See the instructions • Any passive activity loss, tax shelter registration number, and identifor
line 2 on page E-3.
• Rental real estate losses allowed fying number of the tax shelter. There is a
A working interest in an oil or gas well under the exception for real estate profes- $250 penalty if you do not report the regis-
that you held directly or through an entity sionals (explained on page E-1),
tration number of the tax shelter on your tax
that did not limit your liability is not a • Taxable social security or tier 1 railpassive
activity even if you did not materi- road retirement benefits,
return.
ally participate.
• Deductible contributions to a traditional
IRA or certain other qualified retire-
Royalty income not derived in the ordinary
course of a trade or business reported ment plans under section 219,
on Schedule E generally is not considered • The student loan interest deduction,
Specific Instructions
income from a passive activity. • The tuition and fees deduction,
Filers of Form 1041
For more details on passive activities, • The deduction for one-half of self-emsee
the Instructions for Form 8582 and Pub. ployment tax, and
925. • Any excluded amounts under an
Exception for Certain Rental Real employer’s adoption assistance program.
Estate Activities
However, if you file Form 8815, include
If you meet all three of the following condisavings
bond interest excluded on line 14
in your modified adjusted gross income the
tions, your rental real estate losses are not
limited by the passive activity loss rules. If of that form.
you do not meet all three of these conditions,
see the Instructions for Form 8582 to
Reportable Transaction
find out if you must complete and attach Disclosure Statement
If you are a fiduciary filing Schedule E with
Form 1041, enter the estate’s or trust’s employer
identification number (EIN) in the
space for “Your social security number.”
Part I
Income or Loss From
Form 8582 to figure any losses allowed. Use Form 8886 to disclose information for Rental Real Estate and
1. Rental real estate activities are your each reportable transaction in which you
only passive activities.
participated. Form 8886 must be filed for Royalties
2. You do not have any prior year unalliability
is affected by your participation in • Income and expenses from rental real
each tax year that your federal income tax Use Part I to report:
lowed losses from any passive activities.
the transaction. You may have to pay a
3. All of the following apply if you have estate (including personal property leased
penalty if you are required to file Form
an overall net loss from these activities:
with real estate), and
8886 but do not do so. The following are
reportable transactions.
• Royalty income and expenses.
a. You actively participated (defined below)
in all of the rental real estate activities; • Any transaction that is the same as or See the instructions for lines 3 and 4 to
b. If married filing separately, you lived substantially similar to tax avoidance trans-
determine if you should report your rental
apart from your spouse all year;
actions identified by the IRS.
real estate and royalty income on Schedule
• Any transaction offered under condic.
Your overall net loss from these ac-
C, Schedule C-EZ, or Form 4835 instead of
tions of confidentiality for which you paid
Schedule E.
tivities is $25,000 or less ($12,500 or less if
married filing separately);
an advisor a minimum fee.
If you own a part interest in a rental real
• Any transaction for which you have estate property, report only your part of the
d. You have no current or prior year
contractual protection against disallowance income and expenses on Schedule E.
unallowed credits from passive activities;
and
of the tax benefits.
Complete lines 1 and 2 for each rental
e. Your modified adjusted gross income • Any transaction resulting in a loss of real estate property. Leave these lines blank
(defined later) is $100,000 or less ($50,000 at least $2 million in any single tax year or for each royalty property.
or less if married filing separately). $4 million in any combination of tax years. If you have more than three rental real
(At least $50,000 for a single tax year if the estate or royalty properties, complete and
Active participation. You can meet the ac- loss arose from a foreign currency transac- attach as many Schedules E as you need to
tive participation requirement without reg- tion defined in section 988(c)(1), whether list them. But fill in the “Totals” column on
ular, continuous, and substantial or not the loss flows through from an S only one Schedule E. The figures in the
involvement in real estate activities. But corporation or partnership.)
“Totals” column on that Schedule E should
you must have participated in making man- • Any transaction resulting in a be the combined totals of all your Schedagement
decisions or arranging for others book-tax difference of more than $10 mil- ules E. If you are also using page 2 of
to provide services (such as repairs) in a lion on a gross basis. Schedule E, use the same Schedule E on
E-2