Passive Activity Loss rules

Passive Activity Loss rules are tax regulations that limit how you can deduct losses from certain investments, like rental properties or limited partnerships, against your other income. If you earn money from a job and also have losses from these passive activities, you generally can’t use those losses to offset your ordinary income. Instead, the losses can only offset passive income. If you have excess losses, they can be carried forward to future years when you might have passive income to offset. This helps prevent taxpayers from using investment losses to significantly reduce their overall tax bill.