Passive Loss

AAA

DEFINITION of 'Passive Loss'

A financial loss within an investment in any trade or business enterprise in which the investor is not a material participant. Passive losses can stem from investments in rental properties or business partnerships. In order to be considered a non-material participant, the investor cannot be continuously and substantially active or involved in the business activity.

INVESTOPEDIA EXPLAINS 'Passive Loss'

Passive losses can be written off only against passive gains. When losses, which can include a loss from the sale of the passive business or property, exceed the income from passive activities, the rest of the loss can be carried forward to the next tax year, provided there is some passive income to write it off against.

RELATED TERMS
  1. Gross Up

    A practice usually in reference to an employer reimbursing a ...
  2. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  3. Hobby Loss

    A non-deductible loss incurred as a result of doing an activity ...
  4. Passive Income

    Earnings an individual derives from a rental property, limited ...
  5. Negative Gearing

    Borrowing money to buy an investment asset without receiving ...
  6. Material Participation Test

    A set of criteria that determines whether a taxpayer is a material ...
Related Articles
  1. Taxes

    Vacation Home Or Income-Producing Investment?

  2. Investing

    How do I calculate the percentage gain ...

  3. Chart Advisor

    Is It A Breakout? See The Point-And-Figure ...

  4. Chart Advisor

    A Multi-Asset Income ETF For Defensive ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center