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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29658
Experience:  Taxes, Immigration, Labor Relations
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sub-s corp income from passive activities such as from rents

Resolved Question:

sub-s corp income from passive activities such as from rents and interest are now taxed as ordinary income,so are losses from these activities also classified as ordinary losses or are they still passive losses?
Submitted: 8 years ago.
Category: Tax
Expert:  Lev replied 8 years ago.

Both income and loss from passive activities are passive income and loss.

There is no different tax rate for passive activities - so they are taxed at your regular (ordinary) tax rate.


There are limitation for deducting passive losses - passive losses may fully offset passive income, but if you have net passive loss - the deduction is a subject of special rules.


Let me know if you need any help.


Customer: replied 8 years ago.
what you are saying then, the losses from rents on the s-corp level is passes on to the stockholders and that loss depends on the taxpayers individual situation if he can or cannot deduct the loss on his individual return ? correct?
Expert:  Lev replied 8 years ago.

Yes - that is correct.

If the person has another passive income - that income might be fully offset by passive losses.


Use Form 8582 , Passive Activity Loss Limitations, to summarize income and losses from passive activities and to compute the deductible losses. Use Form 8582CR to report passive activity credit limitations.

Generally, you may deduct in full any previously disallowed passive activity loss in the year you dispose of your entire interest in the activity. In contrast, you may not claim unused passive activity credits upon disposition of your entire interest in the activity. However, you may elect to increase the basis of the credit property in an amount equal to the portion of the unused credit that previously reduced the basis of the credit property.


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Expert:  Lev replied 8 years ago.


Please be aware that losses from S-corporation are deductible only to the extend of the basis the shareholder has and loans he/she provided to S-corporation.