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26 U.S.C. § 469 (relating to limitations on deductions for passive activity losses and limitations on passive activity credits) removed many tax shelters, especially for real estate investments. This contributed to the end of the real estate boom of the early-to-mid 1980s, which in turn was the primary cause of the U.S. savings and loan crisis .
It defines passive income as only coming from two sources, or "passive activities": rental activity or "trade or business activities in which you do not materially participate." [9] [19] Other financial and government institutions also recognize it as an income obtained as a result of capital growth or in relation to negative gearing.
However, deductions for losses from passive activities may be deferred to the extent they exceed income from other passive activities. [46] Passive activities include most rental activities (except for real estate professionals) and business activities in which the taxpayer does not materially participate. In addition, losses may not, in most ...
Passive income includes income from things like a rental property or limited partnership, or royalties from a creative project. Portfolio income is money generated from investments such as stocks ...
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The deduction for net operating losses is adjusted to be based on losses for AMTI. [57] Farm losses are limited for AMT purposes. Passive activity losses are recomputed for AMT purposes based on income and deductions as recomputed for AMT. Certain adjustments apply with respect to farm and passive activity loss rules for insolvent taxpayers. [58]
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Capital loss carryover – Any capital loss carryover to the taxable year of the discharge; Basis reduction – The basis of the property of the taxpayer; Passive activity loss and credit carryovers – Any passive activity loss or credit carryover under 26 U.S.C. §469(b) from the taxable year of the discharge