S Corp Passive Income Limitation

The excess business loss limitation is applied at the s corporation shareholder level and for purposes of applying the limitation an s corporation shareholder will take into account its allocable share of entity income loss gain and deduction from trades or businesses attributable to the s corporation in its tax year within which the tax year of the s corporation ends. If an s corporation has income earnings for the year no more than 25 percent of its gross receipts for the year may be generated by passive income. An s corporation is not permitted to generate more than 25 percent of its gross receipts from passive income in any given year if it has accumulated earnings and profits.