Passive-loss rules

Passive activities are investments in which the owner does not materially participate. Losses from such investments can be used only to offset income from passive investments. Passive losses generally can’t be deducted against other kinds of income, such as salary or income from interest, dividends or capital gains. Generally, all real estate and limited-partnership investments are considered passive activities, although there is an exception for real estate professionals and a limited exception for the rental real estate for which non-professionals actively participate. Losses that can’t be used because there is no passive income to offset can be carried over to future years.

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