What Are Passive Activity Rules?

Passive activity rules limit your ability to deduct losses from activities you don't materially participate in — like a rental property or a business you're not actively involved in. Passive losses can generally only offset passive income, not your salary or business income. If you have net passive losses, they're "suspended" and carried forward to future years. Real estate professionals who spend more than 750 hours per year on real estate activities can often deduct rental losses against other income. The rules are complex — a tax professional can help you navigate them.