Business & farm

No, you cannot use the passive losses against non-passive gain.

You will need to carry the passive loss amount from one year to the next until you have passive gains to offset it or until you dispose of the asset in a fully taxable transaction.

For additional information, please refer to IRS Pub 925

IRS Publication 925 Passive Loss carryover

Carryover of Disallowed Deductions

In the case of an activity with respect to which any deductions or credits are disallowed for a taxable year (the loss activity), the disallowed deductions are allocated among your activities for the next tax year in a manner that reasonably reflects the extent to which each activity continues the loss activity. The disallowed deductions or credits allocated to an activity under the preceding sentence are treated as deductions or credits from the activity for the next tax year. For more information, see Regulations section 1.469-1(f)(4).

The at-risk rules limit your losses from most activities to your amount at risk in the activity. You treat any loss that’s disallowed because of the at-risk limits as a deduction from the same activity in the next tax year. If your losses from an at-risk activity are allowed, they’re subject to recapture in later years if your amount at risk is reduced below zero.

.You must apply the at-risk rules before the passive activity rules discussed in the first part of this publication..

Loss defined.

A loss is the excess of allowable deductions from the activity for the year (including depreciation or amortization allowed or allowable and disregarding the at-risk limits) over income received or accrued from the activity during the year. Income doesn’t include income from the recapture of previous losses (discussed, later, under Recapture Rule ).

Form 6198.

Use Form 6198 to figure how much loss from an activity you can deduct.

1. You must file Form 6198 with your tax return if:

   1. You have a loss from any part of an activity that’s covered by the at-risk rules, and

   2. You aren’t at risk for some of your investment in the activity.

2. You must file Form 6198 if you’re engaged in an activity included in (6) under Activities Covered by the At-Risk Rules , later, and you have borrowed amounts described in Certain borrowed amounts excluded under At-Risk Amounts, later.

Loss limits for partners and S corporation shareholders.

Four separate limits may apply to a partner's or shareholder's distributive share of an item of deduction or loss from a partnership or S corporation, respectively. The limits determine the amount each partner or shareholder can deduct on his or her own return. These limits and the order in which they apply are:

1. The adjusted basis of:

   1. The partner's partnership interest, or

   2. The shareholder's stock plus any loans the shareholder makes to the corporation,

2. The excess farm loss rules,

3. The at-risk rules, and

4. The passive activity rules.

See Limitations on Losses, Deductions, and Credits in Partner's Instructions for Schedule K-1 (Form 1065) and Shareholder's Instructions for Schedule K-1 (Form 1120-S).

For additional information, please refer to the following link:

At-risk rules applied before passive activity calculations