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Can Passive suspended losses, become active ?

  • 1.  Can Passive suspended losses, become active ?

    Platinum Most Valuable Member
    Posted 10-13-2018 04:56
    A shareholder of A manufacturing company had passive suspended losses. the  interest was passive to him.
    This year, he took control of the company and met his material participation requirement.
    So now to him, the interest in the manufacturing business is no longer passive.
    What happens to his prior suspended losses?
    Do they follow the entity and become active , or
    Do they sit in " suspense " awaiting passive income from some other source to free them up ?

    any comments appreciated


    Abby Alhante
    Melville NY

  • 2.  RE: Can Passive suspended losses, become active ?

    Posted 10-14-2018 14:09
    Abby, You are correct - @469 the nature of the loss stays without regard to other years and maintains its character.   Based on your facts this year the activity will be active due to participation -  the TP will need passive income to utilize the passive loss- had a great professor a LONG time ago - can't remember which one - PAL (Passive activity loss) needs a PIG (Passive income generator) to be used/utilized

    Todd Ringler
    Calm Waters Consulting, Ltd.
    Lindenhurst NY

  • 3.  RE: Can Passive suspended losses, become active ?

    Silver Most Valuable Member
    Posted 10-15-2018 09:57
    Here is what the Code says:

    Internal Revenue Code

    • 469 Passive activity losses and credits limited. [Amended by the Tax Cuts and Jobs Act, P.L. 115-97; see Code history for details.]

    (f)  Treatment of former passive activities.

    For purposes of this section -

    (1)  In general.

    If an activity is a former passive activity for any taxable year-

    (A)  any unused deduction allocable to such activity under subsection (b) shall be offset against the income from such activity for the taxable year,

    Happy 15th

    Robert Barnett
    CPA, ESQ.
    Capell Barnett Matalon & Schoenfeld LLP