Individual Taxes: Passive Activity Losses

Question 1

Generally, up to $25,000 of losses from such activities may be deducted against active income and portfolio income ($12,500 for married taxpayers filing separately).

Answer 1

This $25,000 deduction limit is reduced by 50% of the taxpayer’s AGI in excess of $100,000.

Step 1: Calculate the amount in excess of $100,000:
$120,000 (AGI) − $100,000 = $20,000

Step 2: multiply the amount in excess of step 1 by 50%:
$20,000 × 50% = $10,000

Step 3: Subtract the maximum by the excess calculated in step 2:
$25,000 − $10,000 = $15,000

Question 2

Interest earned on the temporary investment

Answer 2

is not considered in determining passive loss

Question 3

Rental losses of up to $25,000 annually

Answer 3

may be deducted to arrive at AGI of the individuals who own at least 10% of the property

Question 4

Passive loss rules apply to

Answer 4

individuals, estates, trusts, personal service corporations, and certain closely held corporations

Question 5

Limitations on passive activity losses

Answer 5

apply to individuals as a result of a flow through from S corporations and partnerships, but do not apply at the S corporation or partnership level