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. Passive Income

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

    Income derived from active participation in a trade or business, ...
  3. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  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 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. Investing

    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, and unrealized or so-called "paper profits".Simply put, realized ...
  4. 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.
  5. 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 ...
  6. Retirement

    Who is exempt from paying Social Security taxes?

    Learn about the groups of people who qualify for exemption from Social Security taxes, and explore the process of applying for exemption.
  7. Options & Futures

    How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option writing.
  8. Trading Systems & Software

    How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors that write them.
  9. Options & Futures

    Are put options more difficult to trade than call options?

    Learn about the difficulty of trading both call and put options. Explore how put options earn profits with underlying assets fall in value.
  10. Taxes

    Can you write variable costs off your taxes?

    Learn if you can deduct variable or fixed costs from your business taxes and learn more about business deductions, cost of goods sold and gross profit.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center