With the current emphasis on renewable energy, the question often arises: can energy incentives be bought, sold or transferred? Talk about buying and selling credits actually refers to Renewable Energy Certificates which are not tax credits but tradable commodities representing proof that electricity was generated from a renewable source. Other incentives, such as the ARRA section 1603 Energy Grant Program, may be transferrable to an eligible investor using certain safe harbor partnership structures or a sale leaseback that occurs within the first 90 days after the property is in service. To qualify, the partnership must be structured to avoid direct partnership interest by a foreign entity, tax-exempt corporation or government entity. Other traps for the unwary include at-risk rules for individuals and closely-held businesses.
Grouping Your Passive Loss Activities
Taxpayers who have more than one operating business activity with losses need to be aware of the passive activity loss rules. These rules generally provide that losses from passive business activities, to the extent the losses exceed income from passive business activities, are disallowed for the current taxable year and instead carried forward to the subsequent tax year. The same applies to rental activities, which by tax law are generally kept separate from business activities. Any losses not previously allowed for a passive activity are allowed when a taxpayer disposes of his entire interest in the passive activity. Usually a tax loss is worth more today than in the future. Accordingly, taxpayers who suffer a loss want to use that loss currently and reduce the tax burden.
A business owner may materially participate in a business loss activity and avoid the passive loss characterization. Most rental activities are treated as passive activities without regard to the level of participation of the taxpayer owner. However, qualified real estate professionals do have an opportunity to materially participate in a rental activity. A taxpayer is treated as materially participating in a business activity if one of seven tests is met. One test is satisfied if the taxpayer participates in the business activity for more than 500 hours during the year. In order to help satisfy the 500 hour requirement, a taxpayer is permitted to group business activities that constitute an appropriate economic unit, thereby including hours spent in all activities in the group. Grouping rental activities is also permitted for qualified real estate professionals to assist in meeting a material participation test.
Rev. Proc. 2010-13 (http://www.irs.gov/pub/irs-drop/rp-10-13.pdf) will require a statement to be attached to the tax return reporting any groupings for taxable years beginning on or after Jan. 25, 2010. A taxpayer will not be required to file a written statement reporting groupings that have been made prior to the effective date of the revenue procedure. However, the release of the revenue procedure will bring more attention to this planning. Now is an appropriate time to evaluate any existing groupings, determine any groupings of new ventures and document material participation.
Source: RSM McGladrey |