IRC References
§469(a) Passive Activity Loss Limitation • §469(d) Passive Income/Loss Defined • §469(g) Disposition of Entire Interest • Reg. 1.469-2(f)(6) Self-Rental Rule
Understanding PIGs & PALs
Under the passive activity rules, losses from passive activities (PALs) can generally only offset income from other passive activities. These losses are "suspended" until you have passive income or dispose of the activity.
The strategy: Generate or acquire Passive Income Generators (PIGs) to unlock your suspended passive losses and create current-year tax deductions.
PIGs
Passive Income Generators
Activities that produce passive income: rental properties with positive cash flow, limited partnerships, NNN leases, royalties
PALs
Passive Activity Losses
Suspended losses from passive activities: rental losses, limited partnership losses, businesses without material participation
Enter Your Passive Activities
List your passive income sources and passive loss activities for the current year
Passive Income (PIGs)
Passive Losses (PALs)
Prior Year Suspended PALs
Enter as positive number
Tax Rate for Savings Calculation
Matching Analysis Results
Total PIGs
$0
Passive income
Total PALs
$0
Current year losses
Carryforward
$0
Prior suspended
PALs Released
$0
Now deductible
PIG/PAL Matching Visualization
Tax Impact Analysis
Total Passive Income (PIGs)
$0
Current Year Passive Losses
($0)
Prior Year Suspended Losses
($0)
Total Available PALs
($0)
PALs Released (Limited to PIGs)
$0
Net Passive Income/(Loss)
$0
Remaining Suspended PALs
($0)
Tax Savings from Released PALs
$0
🐷 Common PIG Sources to Consider
NNN Lease Properties
Triple-net lease properties with minimal landlord responsibilities generate steady passive income
Cash-Flow Positive Rentals
Rental properties with positive cash flow after depreciation create passive income
Limited Partnership Income
K-1 income from LPs where you don't materially participate is passive
Oil & Gas Royalties
Working interest royalties from O&G investments can generate passive income
Self-Rental Rule
Rent property to your business (Strategy #35) to recharacterize as non-passive
Equipment Leasing
Passive income from equipment leasing activities where you're not active
📖