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Asked by Jordan Thornhill on May 10, 2024

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If a loss is disallowed under passive loss rules,the loss is:

A) Lost forever.
B) Carried over indefinitely and deductible when passive income is generated.
C) Carried over indefinitely and deductible when the activity is disposed of.
D) Both carried over indefinitely and deductible when passive income is generated and carried over indefinitely and deductible when the activity is disposed of.

Passive Loss Rules

IRS regulations that prevent investors from offsetting income with losses from passive activities unless they directly participate in them.

Disallowed Loss

A loss that cannot be deducted for tax purposes, often because it does not meet specific criteria set by tax authorities.

Passive Income

Income generated from ventures in which an individual is not actively involved.

  • Gain an understanding of the application and consequences of passive activity loss rules.
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MC
Meghann CarterMay 13, 2024
Final Answer :
D
Explanation :
Under passive loss rules, disallowed losses are not lost forever. Instead, they are carried over indefinitely and can be deducted in future years when the taxpayer generates passive income or when the passive activity is fully disposed of. This means both conditions B and C are correct, making D the correct choice.

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