Passive Activity Loss

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Passive Activity Loss (PAL)

A loss incurred in participating in passive investing.
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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.
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passive activity loss

The situation when expenses are greater than income from a passive activity.
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References in periodicals archive ?
IRC section 469(a)(1) disallows deduction for passive activity losses and credits.
Depending on the level of the class, other scenarios may involve income or losses from Schedule K-l, the qualified business income (QBI) deduction, passive activity losses, additional Medicare tax, the net investment income tax, and a sole proprietorship or rental activity.
A decedent's suspended passive activity losses are allowed on the final income tax return, subject to certain limitations.
* Rental activities such as rental real estate ventures generally are passive activities for the rules on passive activity losses.
Fort Myers, FL, July 09, 2014 --( Finally a solution to investors that have been carrying suspended Passive Activity Losses (PALs) on their tax return (Form 8582) every year.
Definition of Passive Activity and Passive Activity Losses
The S corp may have generated passive activity losses to the shareholder if it conducted rental activities or if the shareholder did not materially participate in the business activity of the corporation.
Passive activity losses in excess of passive activity income are suspended.
Special topics include tax research, employment taxes, tax accounting methods, passive activity losses, net operating losses, specially taxed corporations, taxation of securities, retirement plans, estate and gift taxation, and taxation of international transactions.
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.
The second item omitted from the reconciliation relates to the change in the tax code introduced by the Tax Reform Act of 1986 that affected the deductibility of passive activity losses beginning in 1987.