In short
A passive activity loss is a loss from a trade or business in which the taxpayer doesn't materially participate, or (generally) from rental activities. It can offset only passive income; the excess is suspended and carried forward.
Key takeaways
- Suspended losses are released when the taxpayer disposes of the whole activity in a taxable transaction.
- Active participants in rental real estate may deduct up to $25,000 of rental losses, phased out between $100,000 and $150,000 of modified adjusted gross income.
- Losses must first pass the basis and at-risk limits.
Where it's tested
REG: Individual Taxation: Gross Income — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Which type of income is generally treated as portfolio income rather than passive income?