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 ?
Passive loss carryovers could convert lo net operating losses--but only under specific circumstances.
If the property generates a tax loss, it is subject to the passive loss rules (i.e., a loss can be generated; the expenses are not limited to the rental income under the vacation home rules).
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.
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.
The passive loss rules apply to individuals, estates, trust, closely-held C Corporations and "any personal service corporation." [15] The definition of the latter is the same as for the calendar year requirement, including the overall ownership requirement of more than the percent.
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.
Costello points out that passive loss rules apply "without regard to how much time is spent dealing with real estate.
These changes are called the "passive loss rules." Passive Loss Rules