Passive losses may be deducted against passive income, but generally may not be deducted against other income, such as wages, portfolio income, or active business income. Any unused passive activity losses are suspended and carried forward to be used against passive income in future years.
When a taxpayer disposes of his or her entire interest in a passive activity to an unrelated party in a taxable transaction, suspended passive losses are treated as non-passive and may be deducted against passive and non-passive income. Unused suspended credits however may not be used against non-passive income when a passive activity is sold. Unused suspended credits continue in suspense to be used to offset passive income from other passive activities in the future.
If a passive activity is sold in an installment sale, suspended losses from the activity are allowed to be deducted against non-passive income, but only in the ratio that the gain recognized each year bears to the total gain on the sale.
Give me a call if you want to know more about the passive activity rules, or how to utilize suspended passive losses. Jsenney@pselaw.com or 937-223-1130.
AND ONE MORE THING. Don’t forget to add non-compete provisions to the employment agreements, bonus arrangements and deferred compensation agreements you sign with your employees. It’s bad enough to have a former employee compete with you. It’s worse if you are stuck paying him or her bonus, severance or deferred compensation. Give me a call if you want us to help you draft an enforceable non-compete agreement. Jsenney@pselaw.com or 937-223-1130.
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Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423
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