DPP Tax Treatment

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Chapters in this video

  1. 0:00 Flow-through taxation and the allocation trap
  2. 1:15 Passive activity rules and the three income buckets
  3. 3:35 Oil and gas: IDCs, TDCs, and depletion allowances
  4. 5:38 Real estate depreciation and the 25% recapture rate
  5. 7:31 Phantom income and the crossover point
  6. 9:14 Rapid-fire exam recap

What this video covers

  • Why partners owe tax on allocated income even when zero cash is distributed, and how this differs from corporate dividend taxation
  • How passive losses are trapped in the passive income bucket and cannot offset active salary or portfolio dividends and interest
  • What happens to suspended passive losses: indefinite carryforward until offset by passive income or full recognition on complete taxable disposition
  • The immediate deductibility of intangible drilling costs (IDCs) versus the required capitalization and depreciation of tangible drilling costs (TDCs)
  • Why percentage depletion is restricted to independent producers and royalty owners, and completely unavailable to integrated oil companies
  • The 27.5-year straight-line depreciation for residential real estate and 39-year straight-line for commercial real estate, and why land is never depreciable
  • How depreciation recapture taxes accumulated depreciation at a maximum 25% rate upon sale of real property
  • What phantom income is, why it strikes after the crossover point when deductions expire, and why taxable allocation can exceed cash distribution

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