Passive loss

Question 1

What is the fundamental passive activity rule?

Answer 1

Passive activity losses may be deducted only against passive activity income and gains. Losses not allowed are suspended and used in future years

Question 2

Who is subject to the passive activity rules?

Answer 2

Individuals. Estates. Trusts. Personal service corporations. Closely held C corporations

Question 3

What is a passive activity?

Answer 3

Trade or business or income-producing activity in which the taxpayer does not materially participate during the year or rental activities, subject to certain exceptions, regardless of the taxpayer’s level of participation.

Question 4

What is material participation?

Answer 4

In general, the taxpayer participates on a regular, continuous, and substantial basis. More specifically, when the taxpayer meets the conditions of one of the seven tests provided in the Regulations