Source: https://www.law.cornell.edu/uscode/text/26/469
Timestamp: 2019-04-24 10:32:15+00:00

Document:
for the taxable year shall be allowed.
Except as otherwise provided in this section, any loss or credit from an activity which is disallowed under subsection (a) shall be treated as a deduction or credit allocable to such activity in the next taxable year.
in which the taxpayer does not materially participate.
Except as provided in paragraph (7), the term “passive activity” includes any rental activity.
The term “passive activity” shall not include any working interest in any oil or gas property which the taxpayer holds directly or through an entity which does not limit the liability of the taxpayer with respect to such interest.
If any taxpayer has any loss for any taxable year from a working interest in any oil or gas property which is treated as a loss which is not from a passive activity, then any net income from such property (or any property the basis of which is determined in whole or in part by reference to the basis of such property) for any succeeding taxable year shall be treated as income of the taxpayer which is not from a passive activity. If the preceding sentence applies to the net income from any property for any taxable year, any credits allowable under subpart B (other than section 27) or D of part IV of subchapter A for such taxable year which are attributable to such property shall be treated as credits not from a passive activity to the extent the amount of such credits does not exceed the regular tax liability of the taxpayer for the taxable year which is allocable to such net income.
Paragraphs (2) and (3) shall be applied without regard to whether or not the taxpayer materially participates in the activity.
For purposes of paragraph (1)(A), the term “trade or business” includes any activity involving research or experimentation (within the meaning of section 174).
any activity with respect to which expenses are allowable as a deduction under section 212.
this section shall be applied as if each interest of the taxpayer in rental real estate were a separate activity.
Notwithstanding clause (ii), a taxpayer may elect to treat all interests in rental real estate as one activity. Nothing in the preceding provisions of this subparagraph shall be construed as affecting the determination of whether the taxpayer materially participates with respect to any interest in a limited partnership as a limited partner.
In the case of a joint return, the requirements of the preceding sentence are satisfied if and only if either spouse separately satisfies such requirements. For purposes of the preceding sentence, activities in which a spouse materially participates shall be determined under subsection (h).
For purposes of this paragraph, the term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.
In the case of a closely held C corporation, the requirements of subparagraph (B) shall be treated as met for any taxable year if more than 50 percent of the gross receipts of such corporation for such taxable year are derived from real property trades or businesses in which the corporation materially participates.
For purposes of subparagraph (B), personal services performed as an employee shall not be treated as performed in real property trades or businesses. The preceding sentence shall not apply if such employee is a 5-percent owner (as defined in section 416(i)(1)(B)) in the employer.
the aggregate income from all passive activities for such year.
the regular tax liability of the taxpayer for the taxable year allocable to all passive activities.
For purposes of clause (ii), any interest in a passive activity shall not be treated as property held for investment.
For purposes of subparagraph (A), any income, gain, or loss which is attributable to an investment of working capital shall be treated as not derived in the ordinary course of a trade or business.
shall not be taken into account under subsection (a) to the extent so allowable as a deduction.
A similar rule shall apply in the case of any passive activity credit of the taxpayer.
any item of gross income, expense, gain, or loss described in paragraph (1)(A).
Earned income (within the meaning of section 911(d)(2)(A)) shall not be taken into account in computing the income or loss from a passive activity for any taxable year.
For purposes of paragraphs (1) and (2), income from dividends shall be reduced by the amount of any dividends received deduction under section 243 or 245.
any such deduction or credit remaining after the application of subparagraphs (A) and (B) shall continue to be treated as arising from a passive activity.
If a taxpayer ceases for any taxable year to be a closely held C corporation or personal service corporation, this section shall continue to apply to losses and credits to which this section applied for any preceding taxable year in the same manner as if such taxpayer continued to be a closely held C corporation or personal service corporation, whichever is applicable.
was a passive activity for any prior taxable year.
If the taxpayer and the person acquiring the interest bear a relationship to each other described in section 267(b) or section 707(b)(1), then subparagraph (A) shall not apply to any loss of the taxpayer until the taxable year in which such interest is acquired (in a transaction described in subparagraph (A)) by another person who does not bear such a relationship to the tax­payer.
To the extent provided in regulations, income or gain from the activity for preceding taxable years shall be taken into account under subparagraph (A)(ii) for the taxable year to the extent necessary to prevent the avoidance of this section.
any losses to the extent of the excess described in subparagraph (A) shall not be allowed as a deduction for any taxable year.
In the case of an installment sale of an entire interest in an activity to which section 453 applies, paragraph (1) shall apply to the portion of such losses for each taxable year which bears the same ratio to all such losses as the gain recognized on such sale during such taxable year bears to the gross profit from such sale (realized or to be realized when payment is completed).
Except as provided in regulations, no interest in a limited partnership as a limited partner shall be treated as an interest with respect to which a taxpayer materially participates.
A taxpayer shall be treated as materially participating in any farming activity for a taxable year if paragraph (4) or (5) of section 2032A(b) would cause the requirements of section 2032A(b)(1)(C)(ii) to be met with respect to real property used in such activity if such taxpayer had died during the taxable year.
in the case of a closely held C corporation (other than a personal service corporation), the requirements of section 465(c)(7)(C) (without regard to clause (iv)) are met with respect to such activity.
In determining whether a taxpayer materially participates, the participation of the spouse of the taxpayer shall be taken into account.
In the case of any natural person, subsection (a) shall not apply to that portion of the passive activity loss or the deduction equivalent (within the meaning of subsection (j)(5)) of the passive activity credit for any taxable year which is attributable to all rental real estate activities with respect to which such individual actively participated in such taxable year (and if any portion of such loss or credit arose in another taxable year, in such other taxable year).
The aggregate amount to which paragraph (1) applies for any taxable year shall not exceed $25,000.
In the case of any taxpayer, the $25,000 amount under paragraph (2) shall be reduced (but not below zero) by 50 percent of the amount by which the adjusted gross income of the taxpayer for the taxable year exceeds $100,000.
In the case of any portion of the passive activity credit for any taxable year which is attributable to the rehabilitation credit determined under section 47, subparagraph (A) shall be applied by substituting “$200,000” for “$100,000”.
Subparagraph (A) shall not apply to any portion of the passive activity credit for any taxable year which is attributable to any credit determined under section 42.
then, to the portion of such credit to which subparagraph (C) applies.
any passive activity loss or any loss allowable by reason of subsection (c)(7).
In the case of taxable years of an estate ending less than 2 years after the date of the death of the decedent, this subsection shall apply to all rental real estate activities with respect to which such decedent actively participated before his death.
For purposes of subparagraph (A), the $25,000 amount under paragraph (2) shall be reduced by the amount of the exemption under paragraph (1) (without regard to paragraph (3)) allowable to the surviving spouse of the decedent for the taxable year ending with or within the taxable year of the estate.
“$100,000” for “$200,000” in paragraph (3)(B).
does not live apart from his spouse at all times during such taxable year.
An individual shall not be treated as actively participating with respect to any interest in any rental real estate activity for any period if, at any time during such period, such interest (including any interest of the spouse of the individual) is less than 10 percent (by value) of all interests in such activity.
Except as provided in regulations, no interest as a limited partner in a limited partnership shall be treated as an interest with respect to which the taxpayer actively participates.
In determining whether a taxpayer actively participates, the participation of the spouse of the taxpayer shall be taken into account.
The term “closely held C corporation” means any C corporation described in section 465(a)(1)(B).
by substituting “any” for “50 percent or more in value” in section 318(a)(2)(C).
A corporation shall not be treated as a personal service corporation unless more than 10 percent of the stock (by value) in such corporation is held by employee-owners (within the meaning of section 269A(b)(2), as modified by the preceding sentence).
The term “regular tax liability” has the meaning given such term by section 26(b).
The passive activity loss and the passive activity credit (and the $25,000 amount under subsection (i)) shall be allocated to activities, and within activities, on a pro rata basis in such manner as the Secretary may prescribe.
The deduction equivalent of credits from a passive activity for any taxable year is the amount which (if allowed as a deduction) would reduce the regular tax liability for such taxable year by an amount equal to such credits.
such losses shall not be allowable as a deduction for any taxable year.
The passive activity loss of a taxpayer shall be computed without regard to qualified residence interest (within the meaning of section 163(h)(3)).
The term “rental activity” means any activity where payments are principally for the use of tangible property.
For purposes of determining gain or loss from a disposition of any property to which subsection (g)(1) applies, the transferor may elect to increase the basis of such property immediately before the transfer by an amount equal to the portion of any unused credit allowable under this chapter which reduced the basis of such property for the taxable year in which such credit arose. If the taxpayer elects the application of this paragraph, such portion of the passive activity credit of such taxpayer shall not be allowed for any taxable year.
If a passive activity involves the use of a dwelling unit to which section 280A(c)(5) applies for any taxable year, any income, deduction, gain, or loss allocable to such use shall not be taken into account for purposes of this section for such taxable year.
Except as provided in regulations, all members of an affiliated group which files a consolidated return shall be treated as 1 corporation.
This section shall be applied separately with respect to items attributable to each publicly traded partnership (and subsection (i) shall not apply with respect to items attributable to any such partnership). The preceding sentence shall not apply to any credit determined under section 42, or any rehabilitation credit determined under section 47, attributable to a publicly traded partnership to the extent the amount of any such credits exceeds the regular tax liability attributable to income from such partnership.
interests in such partnership are readily tradable on a secondary market (or the substantial equivalent thereof).
For purposes of subsection (g), a taxpayer shall not be treated as having disposed of his entire interest in an activity of a publicly traded partnership until he disposes of his entire interest in such partnership.
For purposes of this section, a regulated investment company (as defined in section 851) holding an interest in a qualified publicly traded partnership (as defined in section 851(h)) shall be treated as a taxpayer described in subsection (a)(2) with respect to items attributable to such interest.
which deal with changes in marital status and changes between joint returns and separate returns.
2018—Subsecs. (c)(3)(B), (d)(2)(A)(ii). Pub. L. 115–141, § 401(d)(1)(D)(ii), substituted “27” for “27(a)”.
Subsec. (i)(3)(D). Pub. L. 115–141, § 401(d)(5)(B)(ii), amended subpar. (D) generally. Prior to amendment, subpar. (D) related to ordering rules to reflect exceptions and separate phase-outs.
Pub. L. 115–141, § 401(d)(5)(B)(i), redesignated subpar. (E) as (D). Former subpar. (D) redesignated (C).
Subsec. (i)(3)(E), (F). Pub. L. 115–141, § 401(d)(5)(B)(i), redesignated subpars. (E) and (F) as (D) and (E), respectively.
Subsec. (i)(6)(B). Pub. L. 115–141, § 401(d)(5)(B)(iii)(I), substituted “or rehabilitation credit” for “, rehabilitation credit, or commercial revitalization deduction” in heading.
2017—Subsec. (i)(3)(F)(iii). Pub. L. 115–97, § 14202(b)(3), substituted “222, and 250” for “and 222”.
Pub. L. 115–97, § 13305(b)(1), struck out “199,” after “sections”.
2014—Subsec. (e)(4). Pub. L. 113–295, § 221(a)(41)(G), struck out “, 244,” after “section 243”.
Subsec. (m). Pub. L. 113–295, § 221(a)(60)(A), struck out subsec. (m) which related to a phase-in of disallowance of losses and credits for interest held before the date of enactment of the Tax Reform Act of 1986.
2004—Subsec. (i)(3)(F)(iii). Pub. L. 108–357, § 102(d)(5), inserted “199,” before “219,”.
Subsec. (k)(4). Pub. L. 108–357, § 331(g), added par. (4).
“(iv) fourth to the portion of such loss to which subparagraph (C) applies, and”.
2001—Subsec. (i)(3)(F)(iii). Pub. L. 107–16 substituted “, 221, and 222” for “and 221”.
Subsec. (i)(6)(B). Pub. L. 106–554, § 1(a)(7) [title I, § 101(b)(3)(B)], substituted “, rehabilitation credit, or commercial revitalization deduction” for “or rehabilitation credit” in heading.
Subsec. (i)(6)(B)(iii). Pub. L. 106–554, § 1(a)(7) [title I, § 101(b)(3)(A)], added cl. (iii).
1998—Subsec. (i)(3)(E)(iii). Pub. L. 105–277 amended cl. (iii) generally. Prior to amendment, cl. (iii) read as follows: “any amount allowable as a deduction under section 219, and”.
Subsec. (i)(3)(E)(ii). Pub. L. 104–188, § 1807(c)(4), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “the amount excludable from gross income under section 135,”.
1993—Subsec. (c)(2). Pub. L. 103–66, § 13143(b)(1), substituted “Except as provided in paragraph (7), the” for “The”.
Subsec. (c)(7). Pub. L. 103–66, § 13143(a), added par. (7).
Subsec. (i)(3)(E)(iv). Pub. L. 103–66, § 13143(b)(2), inserted “or any loss allowable by reason of subsection (c)(7)” after “loss”.
1990—Subsec. (i)(3)(B), (6)(B)(ii). Pub. L. 101–508, § 11813(b)(16)(A), substituted “rehabilitation credit determined under section 47” for “rehabilitation investment credit (within the meaning of section 48(o))”.
Subsec. (k)(1). Pub. L. 101–508, § 11813(b)(16)(B), substituted “rehabilitation credit determined under section 47” for “rehabilitation investment credit (within the meaning of section 48(o))”.
Subsec. (m)(3)(A). Pub. L. 101–508, § 11704(a)(6), substituted “pre-enactment” for “preenactment”.
“(B) Special phase-out of low-income housing and rehabilitation credits.—In the case of any portion of the passive activity credit for any taxable year which is attributable to any credit to which paragraph (6)(B) applies, subparagraph (A) shall be applied by substituting ‘$200,000’ for ‘$100,000’.
Subsec. (i)(3)(D), (E). Pub. L. 101–239 added subpar. (D) and redesignated former subpar. (D) as (E).
1988—Subsec. (e)(1)(A)(ii). Pub. L. 100–647, § 1005(a)(1), inserted “not derived in the ordinary course of a trade or business which is” after “gain or loss”.
“(i) Income or gain from the passive activity for the taxable year (including any gain recognized on the disposition).
“(ii) Net income or gain for the taxable year from all passive activities.
Subsec. (g)(2)(A). Pub. L. 100–647, § 1005(a)(3), substituted “paragraph (1)(A)” for “paragraph (1)” and “to losses described in paragraph (1)(A)” for “to such losses”.
Subsec. (g)(3). Pub. L. 100–647, § 1005(a)(4), substituted “(realized or to be realized” for “realized (or to be realized)” and “is completed)” for “is completed”.
Subsec. (h)(4). Pub. L. 100–647, § 1005(a)(5), inserted “only” before “if”.
Subsec. (i)(1). Pub. L. 100–647, § 1005(a)(6), substituted “in such taxable year (and if any portion of such loss or credit arose in another taxable year, in such other taxable year)” for “in the taxable year in which such portion of such loss or credit arose”.
Subsec. (i)(3)(D). Pub. L. 100–647, § 6009(c)(3), added cl. (ii) and redesignated former cls. (ii) and (iii) as (iii) and (iv), respectively.
Subsec. (i)(6)(C). Pub. L. 100–647, § 1005(a)(7), substituted “Except as provided in regulations, no” for “No”.
Subsec. (j)(6)(A). Pub. L. 100–647, § 1005(a)(8), inserted “with respect to which a deduction has not been allowed by reason of subsection (a)” after “to such interest”.
Subsec. (j)(10), (11). Pub. L. 100–647, § 1005(a)(9), added pars. (10) and (11).
Subsec. (j)(12). Pub. L. 100–647, § 1005(a)(11), added par. (12).
Subsec. (k)(3). Pub. L. 100–647, § 2004(g), added par. (3).
Subsec. (m). Pub. L. 100–647, § 1005(a)(12), substituted “interest” for “interests” in heading.
Subsec. (m)(2). Pub. L. 100–647, § 1005(a)(12), added par. (2) and struck out former par. (2) which resulted in substituting “65”, “40”, “20”, and “10” for “35”, “60”, “80”, and “90” respectively, in second column.
“(ii) the passive activity loss for such taxable year determined by taking into account only pre-enactment interests.
1987—Subsecs. (k) to (m). Pub. L. 100–203 added subsec. (k) and redesignated former subsecs. (k) and (l) as (l) and (m), respectively.
Amendment by section 14202(b)(3) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 14202(c) of Pub. L. 115–97, set out as a note under section 172 of this title.
Amendment by section 102(d)(5) of Pub. L. 108–357 applicable to taxable years beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108–357, set out as a note under section 56 of this title.
Amendment by Pub. L. 107–16 applicable to payments made in taxable years beginning after Dec. 31, 2001, see section 431(d) of Pub. L. 107–16, set out as a note under section 62 of this title.
Amendment by section 1807(c)(4) of Pub. L. 104–188 applicable to taxable years beginning after Dec. 31, 1996, see section 1807(e) of Pub. L. 104–188, set out as an Effective Date note under section 23 of this title.
Amendment by section 11813(b)(16) of Pub. L. 101–508 applicable to property placed in service after Dec. 31, 1990, but not applicable to any transition property (as defined in section 49(e) of this title), any property with respect to which qualified progress expenditures were previously taken into account under section 46(d) of this title, and any property described in section 46(b)(2)(C) of this title, as such sections were in effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 101–508, set out as a note under section 45K of this title.
Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to property placed in service after December 31, 1989, in taxable years ending after such date.
Amendment by section 1005(a)(1)–(9), (11), (12) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Amendment by section 2004(g) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100–647, set out as a note under section 56 of this title.
Amendment by section 6009(c)(3) of Pub. L. 100–647 applicable to taxable years beginning after Dec. 31, 1989, see section 6009(d) of Pub. L. 100–647, set out as a note under section 86 of this title.
Amendment by Pub. L. 100–203 effective as if included in the amendments made by section 501 of the Tax Reform Act of 1986, Pub. L. 99–514, see section 10212(c) of Pub. L. 100–203, set out as a note under section 58 of this title.
The amendments made by this section [enacting this section] shall apply to taxable years beginning after December 31, 1986.
The amendments made by this section shall not apply to any loss, deduction, or credit carried to a taxable year beginning after December 31, 1986, from a taxable year beginning before January 1, 1987.
For provisions that nothing in amendment by section 11813(b)(16) of Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title.
Any loss sustained by a qualified investor with respect to an interest in a qualified low-income housing project for any taxable year in the relief period shall not be treated as a loss from a passive activity for purposes of section 469 of the Internal Revenue Code of 1986.
the taxable year preceding the 1st taxable year for which such project ceased to be a qualified low-income housing project.
such project is placed in service before January 1, 1989.
if such investor is required to make payments after December 31, 1986, of 50 percent or more of the total original obligated investment for such interest.
For purposes of subparagraph (A), a person shall be treated as holding an interest on August 16, 1986, or December 31, 1986, if on such date such person had a binding contract to acquire such interest.
The estate of a decedent shall succeed to the treatment under this section of the decedent but only with respect to the 1st 2 taxable years of such estate ending after the date of the decedent’s death.
paragraph (1)(A)(i) shall be applied by substituting ‘December 31, 1988’ for ‘August 16, 1986’ the 2nd place it appears.
paragraph (1)(B) shall be applied by substituting ‘35 percent’ for ‘50 percent’ and subsection (b)(1) shall be applied by substituting ‘5th taxable year’ for ‘6th taxable year’. The preceding sentence shall not apply to any interest unless, on December 31, 1986, at least one-half of the number of payments required with respect to such interest remain to be paid.
If there is more than 1 building in any project, the determination of when such project is placed in service shall be based on when the 1st building in such project is placed in service.
In determining the amount any person invests in (or is obligated to invest in) any interest, only cash and other property shall be taken into account.
  So in original. The comma probably should be a period.

References: § 401
 § 401
 § 401
 § 401
 § 401
 § 14202
 § 13305
 § 221
 § 221
 § 102
 § 331
 § 1
 § 101
 § 1
 § 101
 § 1807
 § 13143
 § 13143
 § 13143
 § 11813
 § 11813
 § 11704
 § 1005
 § 1005
 § 1005
 § 1005
 § 1005
 § 6009
 § 1005
 § 1005
 § 1005
 § 1005
 § 2004
 § 1005
 § 1005