Passive Activity Losses Carry Forward

Passive activity losses can only be applied in the current year.

Passive activity losses carry forward. Material and active participation. They cannot be carried back. If these passive losses exceed your passive income they are suspended and carried forward indefinitely until future years when you either have passive income or sell a property at a gain. You can carry forward disallowed passive losses to the next taxable year.

Losses that are not deductible for a particular tax year because there is insufficient passive activity income to offset them suspended losses are carried forward indefinitely and are allowed as deductions against passive income in subsequent years. A similar rule applies to credits from passive activities.