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Finance Glossary

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Passive Loss


In limited partnerships, limited partners can't take part in managing their own investments.

These investments generate huge accounting losses at the beginning, which pass through the partnership entity to the limited partners. (Those are the passive losses.) It could be beneficial to those partners who might have a lot of income from other sources and would love to offset that income with these investment losses, but the IRS has put a stop to that. Passive losses can only be used to offset passive income, the income that you get from those limited partnership investments.