Q: I am not totally understanding the passive loss limitation. Can you direct me?
A: A passive loss can be used only to offset passive income and the loss allowed cannot exceed the amount of income for the period. The same is true for non-passive losses, which can only be used to offset non-passive income.
If the losses exceed passive income they can be carried forward without limitation; they cannot be carried back. And if carried forward, they can only be applied to passive income and not to non-passive income.
Course overview: Understanding Schedules K-1
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