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R1 M5 Loss Limitations for Individuals (Characterizations of Income…
R1 M5 Loss Limitations for Individuals
Characterizations of Income
Ordinary
Portfolio
Capital
3000 max deduction !
limited to taxable income
Passive
Factors Limiting Losses
Tax basis
IF L > TB --> CF sL until more TB
IF disposed --> sL is lost
At-Risk basis
IF L > TB & < AB --> CF sL untill more AB
IF sold --> sL offsets gain
Passive activity losses
IF pL > pI --> CF spL untill more pI
IF disposed -> deduct spL
prorata pL to pI
IF become a material participant --> deduct spL
exceptions: mom and pop & real estate agents
Excess business losses
Applies passive and active business income
Net opertaing loss CF for > 250k (single) or 500K(MFJ)