Suspended Loss

AAA

DEFINITION of 'Suspended Loss'

A capital loss that cannot be realized in a given tax year due to passive activity limitations. These losses are therefore "suspended" until they can be netted against passive income in a future tax year. Suspended losses are incurred as a result of passive activities, and can only be carried forward.

INVESTOPEDIA EXPLAINS 'Suspended Loss'

Suspended losses that are incurred as a result of the disposition of a passive interest are subject to an annual capital loss limit. Suspended losses can, however, be used to offset income realized in a later year that is generated from material participation in the activity that initially produced the loss. For example, if a taxpayer incurs a $5,000 suspended loss in one year from a passive activity and then materially participates in the activity the following year and earns $10,000, then the suspended loss may be applied against $5,000 of the earned income, leaving the taxpayer with $5,000 of declarable income for the year.

RELATED TERMS
  1. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  2. Passive Income

    Earnings an individual derives from a rental property, limited ...
  3. Earned Income

    Income derived from active participation in a trade or business, ...
  4. Taxable Income

    The amount of income that is used to calculate an individual's ...
  5. Guideline Premium And Corridor ...

    A test used to determine whether an insurance product can be ...
  6. Cash Value Accumulation Test (CVAT)

    A test method used to determine whether a financial product can ...
RELATED FAQS
  1. How are realized profits different from unrealized or so-called "paper" profits?

    When buying and selling assets for profit, it is important for investors to differentiate between realized profits and gains, ...
Related Articles
  1. Investing Basics

    Oil: A Big Investment With Big Tax Breaks

    Oil and gas investments can provide unmatched deduction potential for accredited investors.
  2. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  3. Active Trading

    Seek Out Past Losses To Uncover Future Gains

    Tax loss carry-forwards can help reduce the tax burden of owning a profitable fund.
  4. Taxes

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  5. Retirement

    Tapping Retirement Funds Early – Without A Penalty

    The IRS offers several ways to skirt the 10% penalty on early retirement distributions.
  6. Budgeting

    How Your Government's Budgetary Decisions Impact the Public Sector

    Issues facing the public sector are not unlike some issues facing America’s oldest and largest companies, but with larger and broader impacts.
  7. Retirement

    What's The Tax Hit On An IRA Withdrawal?

    That depends on factors from the type of IRA you have to your age. Use this guide to plan ahead – and try not to withdraw any money until necessary.
  8. Personal Finance

    Value-Added Tax (VAT)

    Value-added tax, or VAT, is a tax on the added value of a good as it moves through the supply chain to the end consumer. In effect, the tax is levied on the gross margin at each point in the ...
  9. Economics

    EU Probes Tax Laws To Catch Corporate Cheaters

    Recently, the EU has launched an investigation into tax deals between Amazon and the country of Luxembourg.
  10. Taxes

    How Might The Affordable Care Act Affect You?

    The Affordable Care Act is the largest change to the tax code in 20 years that could affect you when you file that 2014 tax return next year.

You May Also Like

Hot Definitions
  1. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  2. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  3. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  5. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
  6. Irrevocable Trust

    A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets ...
Trading Center