Passive Activity Loss


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Passive Activity Loss (PAL)

A loss incurred in participating in passive investing.

Passive Activity Loss

A loss resulting from a passive investment. For example, rental income is considered passive; if a tenant does not pay his/her rent, this may be considered a passive income loss. Passive income losses may only offset passive income gains; they may not offset earned income. Furthermore, passive income loss may not be carried back; it may only be carried forward.

passive activity loss

The situation when expenses are greater than income from a passive activity.
References in periodicals archive ?
Beyond that, the passive activity loss provision offers a
In other words, suspended passive activity losses from the years in which the corporation was closely held will still only be able to be offset against passive activity income and net active income.
Carrying over suspended passive activity losses in exchange
Not all partners are affected by the passive activity loss rules.
This is a ludicrous state of affairs because real estate is the only industry in America that is not allowed to deduct passive activity losses from income.
Once we know the decedent's suspended passive activity losses from prior years, and the losses allocated to the decedent in the year of death, we can determine the tax treatment of the total losses for the decedent's final return.
If the taxpayer has losses which qualify under the At-Risk provisions, he must then look to the Passive Activity loss limitation rules which became
"Therefore, a taxpayer that is considered a real estate professional will be able to treat a rental real estate activity as nonpassive for purposes of the passive activity loss rides, providing that he or she materially participates in the activity under the rules described in Sec.
Finally, the passive activity loss rules reduce his deductible loss to zero.
First, the taxpayers must establish that they qualify as real estate professionals to avoid the general rule that all rental activity is per se passive.(24) Second, if the taxpayer qualifies as a real estate professional, the taxpayer must establish that the taxpayer materially participated in the rental real estate activity.(25) If the taxpayer does not meet both of these requirements, any losses that arise from the rental activity will be considered passive and will be subject to the passive activity loss limitation.(26)
On his 1994 federal return, he treated the two rentals as separate passive activities and offset the passive activity loss from the health club against the rental income from the law firm; he reported total taxable rental income of $106,049.