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Passive Loss

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In US tax regulations, a passive loss is a loss that results from passive activities. The IRS defines whether or not an activity is passive, and could therefore result in a passive loss, by the standard of material participation. If the investor materially participates, any loss is not a passive loss, but must be deducted against ordinary income. An exception to this rule defining what constitutes a passive loss occurs in real estate. A loss on rental property is always counted as a passive loss, regardless of the participation of the property owner. Under existing rules, a passive loss can be carried forward to future years to offset futures passive income. For advice on proper tax treatment of a passive loss, consult a CPA.



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