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Income Tax Planning
Chapter 14: Passive Activity Rules/LIMITATIONS ON PASSIVE ACTIVITY LOSSES (PALs)
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Chapter Study Session

Chapter 14: Passive Activity Rules

LIMITATIONS ON PASSIVE ACTIVITY LOSSES (PALs)

01.Core Concepts

The Basis Limitation • Maximum loss deductible is limited to basis. The At-Risk Limitation • May not deduct in current year more than the amount at risk for investment. • Basis is reduced by nonrecourse debt. • Determines how much is subject to PAL rules. • Disallowed losses carry forward. The Passive Activity Loss Rules • Determine the income tax deduction.