Negative PI Capital and Active vs Passive - Posted by Greg in IN

Real Estate Investing Real Estate Law
#1

Posted by JHyre in Ohio on February 10, 2002 at 08:11:58:

You must restore your PiC before you can make distributions under state law. PiC is not negative if you have positive retained earnings. You cannot have negative basis in property. Rentals are per se passive…two exceptions can apply- $25k of passive losses may be taken if you make< $150,000 OR if you put at least 750 hours into RE AND at least 1/2 of your time spent providing services is spent on RE, RE losses are active. Whether your income from the sale on the L/O is ordinary depends upon whether that is a dealer property…see the how-to articles for my piece on that topic.

John Hyre

#2

Negative PI Capital and Active vs Passive - Posted by Greg in IN

Posted by Greg in IN on February 09, 2002 at 14:37:16:

Per my previous note, I have “transfered” my properties into my s-corp. The problem I have is that I actually have negative paid in capital (due to cash flow, adjusted basis of properties, depreciation, etc. from prior years). It is my understanding that I cannot take distributions until my stock basis is above zero. Is this correct?? Also, do I truly have negative basis? Can I take distributions if Retained earnings are positive?

I work for the s-corp and manage the 14 rentals (lease/options). Is this considered passive?

I purchased on a lease/option and sold the property on a lease/option (the sale went through). It is my understanding that this is treated as Ordinary income from a trade or business. The rents were recorded on the 8865 and my lease payments were recorded as rents paid. Is all of this correct?

Thanks