Definition
Tax losses from passive activities that cannot be deducted in the current year due to passive activity limitations. These losses carry forward to future years.
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Suspended losses remain on your tax return indefinitely and can be deducted against passive income in future years or when the property is sold. Upon sale, all suspended losses become deductible against the gain. This means losses eventually benefit you, just not immediately. Keeping detailed records of suspended losses is critical for proper tax reporting. Suspended losses can be beneficial if you anticipate future passive income or plan to sell the property.
Pro Tip
Track suspended losses carefully and plan to offset them against future passive income or property sales.
Example
A rental property generated $15,000 in suspended losses in year 1 due to passive activity limits. These carried forward to year 2 when passive income was available to offset them.