14598703 doc Instructions for Form 8810, Corporate Passive Activity Loss and Credit Limitations - ir-2025

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Under the passive activity rules you can deduct up to $25,000 in passive losses against your ordinary income (W-2 wages) if your modified adjusted gross income (MAGI) is $100,000 or less. This deduction phases out $1 for every $2 of MAGI above $100,000 until $150,000 when it is completely phased out.
A passive activity is any trade or business in which the taxpayer does not materially participate. A passive activity also includes any rental activity that is not a trade or business.
Leasing equipment, home rentals, and limited partnership are all considered examples of common passive activity. When investors are not materially involved they can claim passive losses from investments like rental properties.
Passive loss rules apply to individuals, estates, trusts, personal service corporations, and certain closely held corporations. Limitations on passive activity losses apply to individuals as a result of a flow through from S corporations and partnerships, but do not apply at the S corporation or partnership level.
Special $25,000 allowance. If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that is disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income.
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469 defines a passive activity as any activity that involves a trade or business in which an individual taxpayer does not materially participate. For this purpose, a trade or business includes an activity for the production of income for which expenses are deductible under Sec. 212 (Sec. 469(c)(6)).
Under the passive activity credit rules, a credit subject to the rules will be fully or partially suspended if the sum of a taxpayers credits subject to the passive activity rules are greater than the taxpayers regular tax liability allocable to all the taxpayers passive activities.
Passive activity loss rules state that passive losses can be used only to offset passive income. A passive activity is one in which the taxpayer did not materially participate during the year in question. Common passive activity losses may stem from leasing equipment, real estate rentals, or limited partnerships.