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Passive Loss

Definition

Passive income is income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it.

What is 'Passive Loss'

A financial loss within an investment in any trade or business enterprise in which the investor is not a material participant. Passive losses can stem from investments in rental properties or business partnerships. In order to be considered a non-material participant, the investor cannot be continuously and substantially active or involved in the business activity.

Explaining 'Passive Loss'

Passive losses can be written off only against passive gains. When losses, which can include a loss from the sale of the passive business or property, exceed the income from passive activities, the rest of the loss can be carried forward to the next tax year, provided there is some passive income to write it off against.


Further Reading


A Policy Critique of the Section 469 Passive Loss Rules
heinonline.org [PDF]
… In addition, even the deduction of current operating losses paid in cash provides a deferral benefit to the taxpayer to the extent the losses are offset by … Page 9. 1988] PASSIVE LOSS RULES … See, eg., Auerbach, The New Economics of Acceler- ated Depreciation, 23 BCL REV …

The case against passive investments: A critical appraisal of the passive loss restrictionsThe case against passive investments: A critical appraisal of the passive loss restrictions
www.jstor.org [PDF]
… In addition, even the deduction of current operating losses paid in cash provides a deferral benefit to the taxpayer to the extent the losses are offset by … Page 9. 1988] PASSIVE LOSS RULES … See, eg., Auerbach, The New Economics of Acceler- ated Depreciation, 23 BCL REV …

Tax Policy and the Passive Loss Rules: Is Anybody ListeningTax Policy and the Passive Loss Rules: Is Anybody Listening
heinonline.org [PDF]
… In addition, even the deduction of current operating losses paid in cash provides a deferral benefit to the taxpayer to the extent the losses are offset by … Page 9. 1988] PASSIVE LOSS RULES … See, eg., Auerbach, The New Economics of Acceler- ated Depreciation, 23 BCL REV …

Land markets and tax reform: the effects of passive loss limitationsLand markets and tax reform: the effects of passive loss limitations
www.jstor.org [PDF]
… In addition, even the deduction of current operating losses paid in cash provides a deferral benefit to the taxpayer to the extent the losses are offset by … Page 9. 1988] PASSIVE LOSS RULES … See, eg., Auerbach, The New Economics of Acceler- ated Depreciation, 23 BCL REV …

Analyzing the influences of passive investment strategies on financial markets via agent-based modelingAnalyzing the influences of passive investment strategies on financial markets via agent-based modeling
www.igi-global.com [PDF]
… In addition, even the deduction of current operating losses paid in cash provides a deferral benefit to the taxpayer to the extent the losses are offset by … Page 9. 1988] PASSIVE LOSS RULES … See, eg., Auerbach, The New Economics of Acceler- ated Depreciation, 23 BCL REV …

Asymmetric learning from financial informationAsymmetric learning from financial information
onlinelibrary.wiley.com [PDF]
… In addition, even the deduction of current operating losses paid in cash provides a deferral benefit to the taxpayer to the extent the losses are offset by … Page 9. 1988] PASSIVE LOSS RULES … See, eg., Auerbach, The New Economics of Acceler- ated Depreciation, 23 BCL REV …

Co-location of passive gear fisheries in offshore wind farms in the German EEZ of the North Sea: A first socio-economic scopingCo-location of passive gear fisheries in offshore wind farms in the German EEZ of the North Sea: A first socio-economic scoping
www.sciencedirect.com [PDF]
… In addition, even the deduction of current operating losses paid in cash provides a deferral benefit to the taxpayer to the extent the losses are offset by … Page 9. 1988] PASSIVE LOSS RULES … See, eg., Auerbach, The New Economics of Acceler- ated Depreciation, 23 BCL REV …

The new 'passive revolution'of the green economy and growth discourse: Maintaining the 'sustainable development'of neoliberal capitalismThe new 'passive revolution'of the green economy and growth discourse: Maintaining the 'sustainable development'of neoliberal capitalism
www.tandfonline.com [PDF]
… In addition, even the deduction of current operating losses paid in cash provides a deferral benefit to the taxpayer to the extent the losses are offset by … Page 9. 1988] PASSIVE LOSS RULES … See, eg., Auerbach, The New Economics of Acceler- ated Depreciation, 23 BCL REV …


Q&A About Passive Loss


How does one carry forward passive losses if there is no income to write it off against?

If there is no income from passive activities, then the rest of the loss can be carried forward for use against future years' income.

What are two examples of passive losses?

Passive losses can stem from investments in rental properties or business partnerships.

What is a passive loss?

A financial loss within an investment in any trade or business enterprise in which the investor is not a material participant.

Can you be continuously and substantially active or involved in the activity to be considered a non-material participant?

Yes, to be considered a non-material participant, the investor cannot be continuously and substantially active or involved in the business activity.