So i came across this term "Passive losses" while reading a post on this website.I searched it on google but i still dont understand it ..What is passive losses?i am newbie so if you can give an example of it,that would really helpful..thanks.
When referring to real estate passive losses refer to losses an investor is experiencing through their rental properties. You can google passive real estate losses and see a little more detail about how it works. Typically you are allowed to write off your passive losses in real estate against ordinary income. There is a limit to how much passive losses you can write off in a year and it does phase out at a certain income level. The google search can provide you those details or speaking with your accountant that would know your personal situation can explain how it might impact your since each person's tax situation is different.
Passive losses are derived from activities that are not pursued on a day to day basis. For example being a landlord does not necessarily involved work every day such as what you do at a 9-5 job.
One of the reasons capital losses are limited to the amount you can deduct is because those are a specific type of passive loss.
Passive losses from business activities such as real estate investments or investments in partnerships or corporations can be limited based upon the the amount invested, your income level and your participation.
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