Definition
A passive loss carryforward is a passive activity loss that could not be used in the current year and is carried forward to future years.
How It Works
When passive losses exceed passive income, the unused amount carries forward. It can offset future passive income or be freed up when the activity is sold in a fully taxable transaction.
Example
An investor's rental losses that cannot offset wages carry forward and offset rental income in later years, or are released when the property is sold.
Who It Applies To
Owners of rental real estate and other passive activities.
Watch-Outs
Carryforwards have value only when there is future passive income or a sale, so suspended losses can sit unused for years for investors with no other passive income.
