John Stancil

This is part 2 of 5 in a series on Passive Activities. (Read Part 1 here)

Prior to the Tax Reform Act of 1986 (TRA), taxpayers were allowed to deduct non-economic losses from passive activities from wage and investment income. Thus, the infamous term “tax shelter” was commonly used in tax planning. However, in the TRA, tax shelters went the way of income averaging and ACRS depreciation, along with other now defunct aspects of our tax code. While the law did not ban such activities, it severely restricted taxpayers’ ability to deduct losses from what is termed “passive activities.”

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