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Passive Activity Loss ATG - Exhibit 9.2: Passive Loss Credit Decision Tree

Publication Date - December 2004

NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.

Exhibit 9.2: Passive Loss Credit Decision Tree

Decision Tree

Is the credit a foreign tax credit?

If yes, the credit is not subject to the passive activity limitations.

Is the credit any of the following:

  • Investment credit
  • Rehabilitation credit
  • Low income housing credit
  • Credit for increasing research
  • Credit for alcohol used as fuel
  • Work opportunity credit
  • Renewable electricity production credit
  • Disabled access credit
  • Enhanced oil recovery credit
  • Credit for employer social security and Medicare tax paid on employee tips
  • Indian employment credit
  • Empowerment zone employment credit
  • Nonconventional source fuel credit
  • Credit for contributions to community development corporations
  • Orphan drug credit
  • Qualified electric vehicle credit

If yes, is it attributable to a rental real estate activity.  If so, the credit is deductible to the extent of the tax equivalent of any remaining $25,000 special allowance.   Exception:  credits attributable to rental real estate of a real estate professional, if the taxpayer materially participated in the rental activity.

If yes, is the credit attributable to a trade or business in which the taxpayer did not materially participate.  If so, the credit is not deductible, unless the taxpayer has passive income.  If there is excess passive income after passive activity losses, the credit is deductible to the extent of the tax equivalency of remaining passive income.

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Page Last Reviewed or Updated: 09-Nov-2016