Passive Loss Rules

What Does Passive Loss Rules Mean?

The passive loss rules are regulations set by the Internal Revenue Service (IRS) stating that business losses from passive activities can only be offset against passive business income.

These rules are also referred to 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 hands-on and continuous. In contrast, passive business activity generates income without the need for constant involvement or even regular physical presence. For example, individuals who earn income by renting property to tenants fall into this category.