Passive Activity Loss Limitations

Passive Activity Loss Limitations refer to tax rules that restrict how much loss you can deduct from certain investments, particularly those that involve rental properties or businesses in which you don't actively participate. Generally, if you earn more from other sources, you can't fully deduct losses from these passive activities against your regular income. Instead, any unused losses can be carried forward to future years. This rule aims to prevent taxpayers from using passive investment losses to offset active income, ensuring that the tax benefits are more aligned with actual involvement in the investment.