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 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, ... Read Full Answer >>
  2. What are common reasons for governments to implement tariffs?

    A tariff is a tax imposed by a governing authority on goods or services entering or leaving the country and is typically ... Read Full Answer >>
  3. What are the Basel III rules, and how does it impact my bank investments?

    The Basel III rules are a regulatory framework designed to strengthen financial institutions by placing guidelines pertaining ... Read Full Answer >>
  4. What are some of the arguments in favor of a value-added tax (VAT)?

    A value-added tax (VAT) offers several advantages over an income tax or traditional sales tax. It raises needed government ... Read Full Answer >>
  5. How does a company derecognize a deferred tax liability?

    Under U.S. generally accepted accounting principles, or GAAP, deferred tax positions must be derecognized during the first ... Read Full Answer >>
  6. How is compound interest taxed?

    Compound interest is money that is earned and added to a principal balance and then earns additional interest. Adding interest ... Read Full Answer >>
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

    Tips on Charitable Contributions: Limits and Taxes

    An overview of the limits and tax deductions of charitable donations.
  5. Taxes

    When Is Dual Citizenship Not A Good Idea?

    It may sound useful, but there are a number of reasons that make dual citizenship a questionable choice.
  6. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...
  7. Mutual Funds & ETFs

    Which ETF is the Best Bet: VTI or IWV?

    A look at two quality ETFs that offer diversification, low expense ratios, and exposure to the total market.
  8. Taxes

    Switzerland's Declining Tax Haven Appeal

    Switzerland's tax haven allure is being threatened by efforts by the US and other governments to make Swiss banks give up their much-vaunted secrecy.
  9. Taxes

    Are You Missing Out On These Tax Exemptions?

    To lower your tax bill, make sure that you're taking all the exemptions that apply to you.
  10. Taxes

    The Fundamentals of Draghinomics

    European Central Bank President Mario Draghi has introduced a set of reforms aimed at reviving the eurozone economy.

You May Also Like

Hot Definitions
  1. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  2. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  3. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  4. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  5. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  6. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
Trading Center