SIE practice questionhardDPPs — Passive Activity Loss Rules
Under IRS passive activity loss rules, losses from a limited partnership can generally only be used to offset:
- AInterest income from bonds
- BPassive income from other limited partnerships or passive activities✓ Correct answer
- CAny type of income including wages and portfolio income
- DOnly capital gains from stock sales
Explanation
Why B — Passive income from other limited partnerships or passive activities
IRS passive activity loss rules (Internal Revenue Code Section 469) restrict losses from passive activities (including limited partnerships) to offset only other passive income. They CANNOT be used to offset active income (wages/salary) or portfolio income (interest/dividends). Unused passive losses are carried forward to offset future passive income or recognized when the interest is fully disposed of.
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