Passive Loss Rules

What Does Passive Loss Rules Mean?

Passive loss rules are Internal Revenue Service regulations that state that business losses from passive activities can only be declared against passive business income.

They are also known as the passive activity rules.

Insuranceopedia Explains Passive Loss Rules

In an active business engagement, such as managing a bank or running a store, participation is palpable. Passive business activity, on the other hand, generates income without requiring constant engagement or even regular physical presence. This is the case, for instance, with people who earn income by renting property to tenants.