What are the Passive Activity Rules?
Individuals, personal service corporations, and closely-held corporations are subject to the passive activity rules of Code § 469. Accordingly, to the extent an investment in a PV System is deemed to be a passive investment, any net losses from such an investment are deductible only against passive activity income. Disallowed passive activity losses may be carried forward until used. If an investor disposes of their entire interest in the PV Systems in a fully taxable transaction (e.g., an exchange pursuant to exercise of the Solar Asset Purchase Option), the investor may use any previously disallowed passive activity losses and any then current passive activity losses against the investor’s nonpassive income in the year of such disposition.
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