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

Name: Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset these passive losses.
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This is known as the passive activity loss (PAL) rule, which defers passive losses until there is enough passive income to offset them. The unused losses are carried forward to future years.

Passive Losses That Exceed Passive Income Are Deferred Until the Taxpayer