It depends. The passive activity loss limits are discussed below and they completely phase out if your income is too high. Also, be sure you answered the 'at risk' questions correctly.
- Most importantly the 'at-risk' question- I have money invested in this business that I'm not at risk of losing; that is, certain cash, property, or borrowed amounts that are protected from loss.
- If you are all at risk or liable for debt for your activity, then you should answer that you do not have amounts that are at risk.
- You can use this link to become more familiar with what 'At-Risk' really means: Is my investment at-risk?
Passive Activity Loss
Generally, the passive activity loss for the tax year isn’t allowed. However, there is a special allowance under which some or all of your passive activity loss may be allowed.
Definition of passive activity loss.
Generally, your passive activity loss for the tax year is the excess of your passive activity deductions over your passive activity gross income.
For a closely held corporation, the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income.
Phaseout rule.
The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.
@bvwest
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