Passive Activity Loss Against Capital Gains

Under the passive activity rules you can deduct up to 25 000 in passive losses against your ordinary income w 2 wages if your modified adjusted gross income magi is 100 000 or less.

Passive activity loss against capital gains. One common situation involving real estate is the sale of the property and the recognition of capital gains which may or may not be accompanied by the receipt of cash. Passive losses can be written off only against passive gains. If you had 8 000 in gains and 7 000 in losses you claim 1 000 in gains which are taxed at a different rate than earned income. 1 say you have this situation.

This deduction phases out 1 for every 2 of magi above 100 000 until 150 000 when it is completely phased out. When you dispose of your entire interest in a passive activity or group of activities if grouped in a fully taxable transaction you release the suspended passive losses from that activity. 300 000 of long term capital gain from the sale of your pine street rental property this property is not grouped. A passive loss may be claimed by a rental property owner or a limited partner based on their proportional share of a partnership.

Passive activity loss rules are a set of irs rules that prohibit using passive losses to offset earned or ordinary income. In effect one gain allows two losses. These capital gains can be offset by both capital losses and passive losses including losses from other passive activities.