Again from the seminar:
We all know to look to basis but let's not forget at risk and passive loss rules.
Think of this as a set of hurdles, the first of which is basis. Once over the basis hurdle, the "at risk" hurdle comes into play.
Ex: Betsy has shares in a S Corp which is also a minority owner a partnership. The Corp is at risk to the partnership, but Betsy is not. Therefore, losses from the partnership are suspended at the 1040 level. (Condensed version from the manual)
Assuming those first two hurdles are passed, the shareholder must materially participate the trade and business activities of the Corp to avoid the passive loss rules. Note this might actually be good depending on other passive activities of the shareholder.
Where would this come in? How about if one is the money man and one the operations person? How about if Mom and Dad retire, move to Palm Springs and the kids take over? Parents may have lots of basis that is at risk but be passive shareholder's now.
We all know to look to basis but let's not forget at risk and passive loss rules.
Think of this as a set of hurdles, the first of which is basis. Once over the basis hurdle, the "at risk" hurdle comes into play.
Ex: Betsy has shares in a S Corp which is also a minority owner a partnership. The Corp is at risk to the partnership, but Betsy is not. Therefore, losses from the partnership are suspended at the 1040 level. (Condensed version from the manual)
Assuming those first two hurdles are passed, the shareholder must materially participate the trade and business activities of the Corp to avoid the passive loss rules. Note this might actually be good depending on other passive activities of the shareholder.
Where would this come in? How about if one is the money man and one the operations person? How about if Mom and Dad retire, move to Palm Springs and the kids take over? Parents may have lots of basis that is at risk but be passive shareholder's now.