The Basics About
The Tax Reform Act of 1986 created categories of passive income and passive losses.* It also limited the use and value of passive losses. For many taxpayers, the Act mandated that passive losses can be used to off-set passive income. Every tax season, many taxpayers are not creating valuable deductions by using their passive losses.
The excess of passive activity deductions over your passive activity income.
Income from a business in which the taxpayer does not materially participate.