Passive Loss & At-Risk Rules 2016 - 3 CPE
Section 469 provides that a taxpayer’s income and losses for each tax year must be categorized into passive and nonpassive. Losses from passive trade or business activities in excess of income from passive trade or business activities may not be deducted against other income (§469(a)(1)(A)).
The passive loss rules provide that deductions from passive trade or business activities, to the extent they exceed income from all such passive activities (exclusive of portfolio income), generally may not be deducted against other income (§469(a)(1)(A)). Similarly, credits from passive activities generally are limited to the tax due to the passive activities (§469(a)(1)(A)). Suspended losses and credits are carried forward and treated as deductions and credits from passive activities in the next tax year (§469(b)). Suspended losses from an activity are allowed in full when the taxpayer disposes of his entire interest in the activity. However, the ordering of recognized losses is determined under §469(g)(1).