Passive Loss

Passive loss results from a business activity in which an individual or entity does not actively engage such as renting out real estate by an individual who is not in the business of renting or leasing property. Any loss resulting from this passive activity is considered a passive loss. The critical fact is that you may only be able to deduct passive losses on your tax return to the extent of passive gains for the year. Any excess amounts can be carried over to the next year. For example, if property rental that falls under the scope of a passive activity results in a profit of $10,000 for the first six months and a loss of $6,000 for the latter six months, a passive loss of $6,000 could be tax deductible for the year. The excess amount of $4,000 can be deducted the following year.