Q: We've incorporated a real estate venture and have purchased an eight-unit apartment building. We've turned active management over to a property management company. Our only purpose in incorporating was to avoid certain constraints we would have had if we had entered into a partnership agreement. Now we are told that the Internal Revenue Service may not let us deduct losses the corporation may have on our individual tax returns. In other words, the Internal Revenue Service will regard the corporation as a "real one."

A: That's the position the tax court took in a recent memorandum opinion. The court held that a corporation's losses couldn't be passed through to the individual tax returns of the corporation's shareholders. That is the normal situation, of course. If your corporation's gross income is not more than 20 percent passive income (the income from rental you're receiving now is considered passive income), then it can qualify as a Subchapter S corporation. It can then pass through its losses to the individual shareholders. There are some other requirements to qualify a corporation as a Subchapter S corporation, so better check your situation out with your tax or legal adviser.

Q: We're planning to hold the first trust deed (mortgage) and note on a new home our son and daughter-in-law are buying. The first trust deed amount is $60,000 - our life's savings. Settlement costs are paid by the seller of these subdivision houses. I have three questions. First, does it matter who prepares the trust deed and note? Second, should I choose my own lawyer and pay his fee or can I let the settlement lawyer handle things for me? Third, what precautions should I take?

A: Answering your first question, it's not so important who prepares the trust deed and note as it is that you have it reviewed and approved by an attorney representing you and your wife's interests. The trust deed and note should accomplish whay you and your wife and you son and daughter-in-law as borrowers. You'll probably want to use a FNMA-FHLMC form for Virginia. That should resolve some of your problems. In addition, it should permit you to sell it or hypothecate it later if you need or want to do either.

To answer your secon question, I think it wise to have your own lawyer. When you're lending your life savings, the fee involved should be worth it to assure you (as nearly as possible) that everything is done properly and failry and that you and your wife's interests are protected. Your third question is pretty well answered by the answers to your first two questions. Discuss your situation with the lawyer you retained to represent you and your wife. The FNMA-FHLMC for trust deed and note are well drafted. But there still may be some matters you'll want to consider. For example, since the borrowers are your son and daughter-in-law, do you want to forgo a prepayment penalty? If not, what kind and how much? Do you want to provide for a late payment charge? If so, how much time will you give them before they're considered late in paying you? How much will the charge be? Discuss these and other details with your attorney.