Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset these passive losses or until the taxpayer disposes of that activity.

Question

Quizplus · Accepted Answer

This is a correct statement about passive losses. When there is an excess of passive losses over passive income, they cannot be deducted in the current year, but they can be carried forward to offset future passive income or be deducted when the activity is sold or otherwise disposed of in a taxable transaction. This rule applies to passive activities such as rental real estate, limited partnerships, and other investments in which the taxpayer does not materially participate.

Passive Losses That Exceed Passive Income Are Deferred Until the Taxpayer