The Basics About

Passive Income and Passive Losses:

The Tax Reform Act of 1986 created the categories of passive income and passive losses.* At the same time, it also limited the use and value of passive losses. For many taxpayers, the Act mandated that passive losses could be used only to shelter passive income; not portfolio income and not earned income. This means that every tax season taxpayers leave valuable deductions on the table. For taxpayers who have passive losses, those losses are simply unused and carried forward year by year.