Passive Loss Limitations Exemption


Energy - Fossil Fuels

Subsidy Type

Tax Expenditure

Committees of Jurisdiction

Senate Finance Committee

$11 FY 16 Budget Score (in mil.)
$229 FY 16-25 Budget Score (in mil.)

Passive business activity refers to any activity in which a taxpayer has an economic interest but does not “materially participate.” Normally, taxpayers are allowed to deduct the losses they incur from passive activities (passive losses), but only an amount equal to income generated from the activity. Any excess of passive losses over passive income in a given year can be carried over to the next taxable year, subject to the same limitation. The passive loss limitation, however, does not apply to working interests in oil or gas wells because such activity is specifically exempted from the definition of “passive activity”. This exemption for oil and gas working interest allows oil and gas companies to deduct their excess passive losses against income generated from business activities in which they materially participate.

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