Passive Activity Loss

(redirected from Passive Loss)

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 ?
Unfortunately for the Hardys, however, the court also held that if income from the LLC had been correctly reported as passive income in 2006 and 2007, the income would have fully absorbed their passive losses in those years, and there would have been no passive loss to carry forward to 2008.
In 2006 and 2007, Hardy had passive losses from unrelated rental activities that, due to a lack of passive income, could not be deducted under the passive loss limitations of Sec.
469(c)(7) passive loss exception for real estate professionals.
This IRS guidance makes clear that Section 469(c) (7)(B) cannot be used by a trust or estate to mitigate the impact of the passive loss limitations under Section 469 because, as they are not individuals, trusts and estates are incapable of meeting the personal service requirements outlined within the real property rule.
Under the passive loss rule, aggregate losses from "passive" activities (see Q 7914) may generally be deducted in a year only to the extent they do not exceed aggregate income from passive activities in that year; credits from passive activities may be taken against tax liability allocated only to passive activities.
In the tax area, IREM will work with National Association of Realtors (NAR) to retain current capital gains rules as they apply to appreciated property, like-kind exchanges and carried interest, in particular by keeping capital gains tax rates at the existing 15 percent while suspending passive loss rules.
Just think back to 1986's enactment of the passive loss rules, which significantly curtailed the deductions available to real estate investors, setting the stage for a major decline in real estate values that lasted for more than a decade.
In addition, C corps with passive loss carryforwards should consider electing S status.
The passive loss rules apply to individuals, estates, trust, closely-held C Corporations and "any personal service corporation.
A section on preliminary considerations covers anti-abuse rules, investment joint venture rules, liability issues, passive loss limitations and related tax issues.
A bill extending tax credits and easing passive loss rules may go to President Clinton this month.
Succinctly stated by Sharon Frey, CPM, vice president of JMC Realty Group, a Dallas, TX-based commercial brokerage firm, the introduction of passive loss rules was "onerous.