Internal Revenue Code · 26 U.S.C.
§ 469. Passive activity losses and credits limited
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 469
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- October 22, 1986 by Pub. L. 99–514
- Last amended
- March 11, 2021 by Pub. L. 117–2
- Amendments
- 16 dated changes in the source credit
- Length
- 12 subsections · 4,237 words · about 18 min to read
- Defines
- 15 terms
- Cross-references
- cites 26; cited by 19 Code sections and 36 other regulations
- Regulations
- 15 issued under this section
Except as provided in paragraph (7), the term “passive activity” includes any rental activity.
The term “passive activity” shall not include any working interest in any oil or gas property which the taxpayer holds directly or through an entity which does not limit the liability of the taxpayer with respect to such interest.
If any taxpayer has any loss for any taxable year from a working interest in any oil or gas property which is treated as a loss which is not from a passive activity, then any net income from such property (or any property the basis of which is determined in whole or in part by reference to the basis of such property) for any succeeding taxable year shall be treated as income of the taxpayer which is not from a passive activity. If the preceding sentence applies to the net income from any property for any taxable year, any credits allowable under subpart B (other than section 27) or D of part IV of subchapter A for such taxable year which are attributable to such property shall be treated as credits not from a passive activity to the extent the amount of such credits does not exceed the regular tax liability of the taxpayer for the taxable year which is allocable to such net income.
Paragraphs (2) and (3) shall be applied without regard to whether or not the taxpayer materially participates in the activity.
For purposes of paragraph (1)(A), the term “trade or business” includes any activity involving research or experimentation (within the meaning of section 174).
For purposes of this paragraph, the term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.
In the case of a closely held C corporation, the requirements of subparagraph (B) shall be treated as met for any taxable year if more than 50 percent of the gross receipts of such corporation for such taxable year are derived from real property trades or businesses in which the corporation materially participates.
For purposes of subparagraph (B), personal services performed as an employee shall not be treated as performed in real property trades or businesses. The preceding sentence shall not apply if such employee is a 5-percent owner (as defined in section 416(i)(1)(B)) in the employer.
For purposes of subparagraph (A), any income, gain, or loss which is attributable to an investment of working capital shall be treated as not derived in the ordinary course of a trade or business.
Earned income (within the meaning of section 911(d)(2)(A)) shall not be taken into account in computing the income or loss from a passive activity for any taxable year.
For purposes of paragraphs (1) and (2), income from dividends shall be reduced by the amount of any dividends received deduction under section 243 or 245.
If a taxpayer ceases for any taxable year to be a closely held C corporation or personal service corporation, this section shall continue to apply to losses and credits to which this section applied for any preceding taxable year in the same manner as if such taxpayer continued to be a closely held C corporation or personal service corporation, whichever is applicable.
If the taxpayer and the person acquiring the interest bear a relationship to each other described in section 267(b) or section 707(b)(1), then subparagraph (A) shall not apply to any loss of the taxpayer until the taxable year in which such interest is acquired (in a transaction described in subparagraph (A)) by another person who does not bear such a relationship to the taxpayer.
To the extent provided in regulations, income or gain from the activity for preceding taxable years shall be taken into account under subparagraph (A)(ii) for the taxable year to the extent necessary to prevent the avoidance of this section.
In the case of an installment sale of an entire interest in an activity to which section 453 applies, paragraph (1) shall apply to the portion of such losses for each taxable year which bears the same ratio to all such losses as the gain recognized on such sale during such taxable year bears to the gross profit from such sale (realized or to be realized when payment is completed).
Except as provided in regulations, no interest in a limited partnership as a limited partner shall be treated as an interest with respect to which a taxpayer materially participates.
A taxpayer shall be treated as materially participating in any farming activity for a taxable year if paragraph (4) or (5) of section 2032A(b) would cause the requirements of section 2032A(b)(1)(C)(ii) to be met with respect to real property used in such activity if such taxpayer had died during the taxable year.
In determining whether a taxpayer materially participates, the participation of the spouse of the taxpayer shall be taken into account.
In the case of any natural person, subsection (a) shall not apply to that portion of the passive activity loss or the deduction equivalent (within the meaning of subsection (j)(5)) of the passive activity credit for any taxable year which is attributable to all rental real estate activities with respect to which such individual actively participated in such taxable year (and if any portion of such loss or credit arose in another taxable year, in such other taxable year).
The aggregate amount to which paragraph (1) applies for any taxable year shall not exceed $25,000.
In the case of any taxpayer, the $25,000 amount under paragraph (2) shall be reduced (but not below zero) by 50 percent of the amount by which the adjusted gross income of the taxpayer for the taxable year exceeds $100,000.
In the case of any portion of the passive activity credit for any taxable year which is attributable to the rehabilitation credit determined under section 47, subparagraph (A) shall be applied by substituting “$200,000” for “$100,000”.
Subparagraph (A) shall not apply to any portion of the passive activity credit for any taxable year which is attributable to any credit determined under section 42.
In the case of taxable years of an estate ending less than 2 years after the date of the death of the decedent, this subsection shall apply to all rental real estate activities with respect to which such decedent actively participated before his death.
For purposes of subparagraph (A), the $25,000 amount under paragraph (2) shall be reduced by the amount of the exemption under paragraph (1) (without regard to paragraph (3)) allowable to the surviving spouse of the decedent for the taxable year ending with or within the taxable year of the estate.
An individual shall not be treated as actively participating with respect to any interest in any rental real estate activity for any period if, at any time during such period, such interest (including any interest of the spouse of the individual) is less than 10 percent (by value) of all interests in such activity.
Except as provided in regulations, no interest as a limited partner in a limited partnership shall be treated as an interest with respect to which the taxpayer actively participates.
In determining whether a taxpayer actively participates, the participation of the spouse of the taxpayer shall be taken into account.
The term “closely held C corporation” means any C corporation described in section 465(a)(1)(B).
The term “regular tax liability” has the meaning given such term by section 26(b).
The deduction equivalent of credits from a passive activity for any taxable year is the amount which (if allowed as a deduction) would reduce the regular tax liability for such taxable year by an amount equal to such credits.
The passive activity loss of a taxpayer shall be computed without regard to qualified residence interest (within the meaning of section 163(h)(3)).
The term “rental activity” means any activity where payments are principally for the use of tangible property.
For purposes of determining gain or loss from a disposition of any property to which subsection (g)(1) applies, the transferor may elect to increase the basis of such property immediately before the transfer by an amount equal to the portion of any unused credit allowable under this chapter which reduced the basis of such property for the taxable year in which such credit arose. If the taxpayer elects the application of this paragraph, such portion of the passive activity credit of such taxpayer shall not be allowed for any taxable year.
If a passive activity involves the use of a dwelling unit to which section 280A(c)(5) applies for any taxable year, any income, deduction, gain, or loss allocable to such use shall not be taken into account for purposes of this section for such taxable year.
Except as provided in regulations, all members of an affiliated group which files a consolidated return shall be treated as 1 corporation.
This section shall be applied separately with respect to items attributable to each publicly traded partnership (and subsection (i) shall not apply with respect to items attributable to any such partnership). The preceding sentence shall not apply to any credit determined under section 42, or any rehabilitation credit determined under section 47, attributable to a publicly traded partnership to the extent the amount of any such credits exceeds the regular tax liability attributable to income from such partnership.
For purposes of this section, a regulated investment company (as defined in section 851) holding an interest in a qualified publicly traded partnership (as defined in section 851(h)) shall be treated as a taxpayer described in subsection (a)(2) with respect to items attributable to such interest.
(Added Pub. L. 99–514, title V, § 501(a), Oct. 22, 1986, 100 Stat. 2233; amended Pub. L. 100–203, title X, § 10212(a), Dec. 22, 1987, 101 Stat. 1330–405; Pub. L. 100–647, title I, § 1005(a)(1)–(9), (11), (12), title II, § 2004(g), title VI, § 6009(c)(3), Nov. 10, 1988, 102 Stat. 3387–3389, 3603, 3690; Pub. L. 101–239, title VII, § 7109(a), Dec. 19, 1989, 103 Stat. 2322; Pub. L. 101–508, title XI, §§ 11704(a)(6), 11813(b)(16), Nov. 5, 1990, 104 Stat. 1388–518, 1388–555; Pub. L. 103–66, title XIII, § 13143(a), (b), Aug. 10, 1993, 107 Stat. 440, 441; Pub. L. 104–188, title I, §§ 1704(d)(1), (e)(1), 1807(c)(4), Aug. 20, 1996, 110 Stat. 1878, 1902; Pub. L. 105–277, div. J, title IV, § 4003(a)(2)(D), Oct. 21, 1998, 112 Stat. 2681–908; Pub. L. 106–554, § 1(a)(7) [title I, § 101(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–599; Pub. L. 107–16, title IV, § 431(c)(3), June 7, 2001, 115 Stat. 68; Pub. L. 107–147, title IV, § 412(a), Mar. 9, 2002, 116 Stat. 53; Pub. L. 108–357, title I, § 102(d)(5), title III, § 331(g), Oct. 22, 2004, 118 Stat. 1429, 1477; Pub. L. 113–295, div. A, title II, § 221(a)(41)(G), (60)(A), Dec. 19, 2014, 128 Stat. 4044, 4047; Pub. L. 115–97, title I, §§ 13305(b)(1), 14202(b)(3), Dec. 22, 2017, 131 Stat. 2126, 2216; Pub. L. 115–141, div. U, title IV, § 401(d)(1)(D)(ii), (5)(B)(i)–(iii), Mar. 23, 2018, 132 Stat. 1206, 1210; Pub. L. 116–260, div. EE, title I, § 104(b)(2)(H), Dec. 27, 2020, 134 Stat. 3041; Pub. L. 117–2, title IX, § 9042(b)(8), Mar. 11, 2021, 135 Stat. 122.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
- closely held C corporation § 469(j)(1)
- former passive activity § 469(f)(3)
- net active income § 469(e)(2)(B)
- passive activity § 469(c)(1)
- passive activity § 469(c)(2)
- passive activity § 469(c)(3)(A)
- passive activity credit § 469(d)(2)
- passive activity loss § 469(d)(1)
- personal service corporation § 469(j)(2)
- publicly traded partnership § 469(k)(2)
- real property trade or business § 469(c)(7)(C)
- regular tax liability § 469(j)(3)
- rental activity § 469(j)(8)
- trade or business § 469(c)(5)
- trade or business § 469(c)(6)
Regulations under this section
Treasury regulations (26 CFR) issued under § 469
- § 1.469-0 Table of contents.
- § 1.469-1 General rules.
- § 1.469-1T General rules (temporary).
- § 1.469-2 Passive activity loss.
- § 1.469-2T Passive activity loss (temporary).
- § 1.469-3 Passive activity credit.
- § 1.469-3T Passive activity credit (temporary).
- § 1.469-4 Definition of activity.
- § 1.469-4T Definition of activity (temporary).
- § 1.469-5 Material participation.
- § 1.469-5T Material participation (temporary).
- § 1.469-7 Treatment of self-charged items of interest income and deduction.
- § 1.469-9 Rules for certain rental real estate activities.
- § 1.469-10 Application of section 469 to publicly traded partnerships.
- § 1.469-11 Applicability date and transition rules.
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 26 other sections
- § 27 Taxes of foreign countries and possessions of the United States
- § 174 Amortization of research and experimental expenditures
- § 212 Expenses for production of income
- § 416(i)(1)(B) Special rules for top-heavy plans
- § 911(d)(2)(A) Citizens or residents of the United States living abroad
- § 243 Dividends received by corporations
- § 267(b) Losses, expenses, and interest with respect to transactions between related taxpayers
- § 707(b)(1) Transactions between partner and partnership
- § 453 Installment method
- § 2032A(b) Valuation of certain farm, etc., real property
- § 465(c)(7)(C) Deductions limited to amount at risk
- § 47 Rehabilitation credit
- § 42 Low-income housing credit
- § 86 Social security and tier 1 railroad retirement benefits
- § 85(c) Unemployment compensation
- § 135 Income from United States savings bonds used to pay higher education tuition and fees
- § 137 Adoption assistance programs
- § 219 Retirement savings
- § 221 Interest on education loans
- § 250 Foreign-derived deduction eligible income and net CFC tested income
- § 269A(b)(1) Personal service corporations formed or availed of to avoid or evade income tax
- § 318(a)(2)(C) Constructive ownership of stock
- § 26(b) Limitation based on tax liability; definition of tax liability
- § 163(h)(3) Interest
Show 2 more
Cited by 19 Code sections
- § 32(i)(2)(E)(ii) Earned income
- § 42(h)(5)(B) Low-income housing credit
- § 56(b)(2)(C) Adjustments in computing alternative minimum taxable income
- § 58(a)(2)(B) Denial of certain losses
- § 74(d)(2)(B) Prizes and awards
- § 85(c)(2)(A) Unemployment compensation
- § 108(b)(2)(F) Income from discharge of indebtedness
- § 135(c)(4)(B) Income from United States savings bonds used to pay higher education tuition and fees
- § 137(b)(3)(B) Adoption assistance programs
- § 163(d)(3)(B)(ii) Interest
- § 199A(i)(2)(B) Qualified business income
- § 219(g)(3)(A)(i) Retirement savings
- § 221(b)(2)(C)(ii) Interest on education loans
- § 461(j)(7) General rule for taxable year of deduction
- § 470(e)(2) Limitation on deductions allocable to property used by governments or other tax-exempt entities
- § 761(f)(2)(B) Terms defined
- § 1361(d)(1)(C) S corporation defined
- § 1411(c)(2)(A) Imposition of tax
- § 6225(c)(5)(A) Partnership adjustment by Secretary
Cited in 36 regulations not issued under it
- § 1.1(i)-1T Questions and answers relating to the tax on unearned income certain minor children (Temporary).
- § 1.30-1 Definition of qualified electric vehicle and recapture of credit for qualified electric vehicle.
- § 1.42-1T Limitation on low-income housing credit allowed with respect to qualified low-income buildings receiving housing credit allocations from a State or local housing credit agency (temporary).
- § 1.48D-6 Elective payment election.
- § 1.62-1T Adjusted gross income (temporary).
- § 1.101-1 Exclusion from gross income of proceeds of life insurance contracts payable by reason of death.
- § 1.163-8T Allocation of interest expense among expenditures (temporary).
- § 1.163-9T Personal interest (temporary).
- § 1.163-10T Qualified residence interest (temporary).
- § 1.163(j)-1 Definitions.
- § 1.163(j)-3 Relationship of the section 163(j) limitation to other provisions affecting interest.
- § 1.163(j)-6 Application of the section 163(j) limitation to partnerships and subchapter S corporations.
- § 1.163(j)-9 Elections for excepted trades or businesses; safe harbor for certain REITs.
- § 1.163(j)-10 Allocation of interest expense, interest income, and other items of expense and gross income to an excepted trade or business.
- § 1.199A-3 Qualified business income, qualified REIT dividends, and qualified PTP income.
- § 1.263A-9 The avoided cost method.
- § 1.408A-4 Converting amounts to Roth IRAs.
- § 1.645-1 Election by certain revocable trusts to be treated as part of estate.
- § 1.704-3 Contributed property.
- § 1.861-9T Allocation and apportionment of interest expense (temporary).
- § 1.1366-1 Shareholder's share of items of an S corporation.
- § 1.1398-1 Treatment of passive activity losses and passive activity credits in individuals' title 11 cases.
- § 1.1411-0 Table of contents of provisions applicable to section 1411.
- § 1.1411-4 Definition of net investment income.
Show 12 more
- § 1.1411-5 Trades or businesses to which tax applies.
- § 1.1446-6 Special rules to reduce a partnership's 1446 tax with respect to a foreign partner's allocable share of effectively connected taxable income.
- § 1.1502-13 Intercompany transactions.
- § 1.1502-35 Transfers of subsidiary stock and deconsolidations of subsidiaries.
- § 1.6417-2 Rules for making elective payment elections.
- § 1.6417-4 Elective payment election for electing taxpayers that are partnerships or S corporations.
- § 1.6418-2 Rules for making transfer elections.
- § 1.6418-3 Additional rules for partnerships and S corporations.
- § 301.6225-2 Modification of imputed underpayment.
- § 301.6231(a)(5)-1 Definition of affected item.
- § 301.6404-3 Abatement of penalty or addition to tax attributable to erroneous written advice of the Internal Revenue Service.
- § 301.9100-7T Time and manner of making certain elections under the Tax Reform Act of 1986.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 117–2Parts changed in 2021: (i)(3)(E)(ii)
- Amended by Pub. L. 116–260Parts changed in 2020: (i)(3)(E)(iii)
- Amended by Pub. L. 115–141Parts changed in 2018: (c)(3)(B) (i)(3)(C) (i)(3)(D) (i)(3)(E) (i)(6)(B) (i)(6)(B)(iii)
- Amended by Pub. L. 115–97Parts changed in 2017: (i)(3)(F)(iii)
- Amended by Pub. L. 113–295Parts changed in 2014: (e)(4) (m)
- Amended by Pub. L. 108–357Parts changed in 2004: (i)(3)(F)(iii) (k)(4)
- Amended by Pub. L. 107–147Parts changed in 2002: (i)(3)(E)(ii)
- Amended by Pub. L. 107–16Parts changed in 2001: (i)(3)(F)(iii)
- Amended by Pub. L. 106–554Parts changed in 2000: (i)(3)(C) (i)(6)(B) (i)(6)(B)(iii)
- Amended by Pub. L. 105–277Parts changed in 1998: (i)(3)(E)(iii)
- Amended by Pub. L. 104–188Parts changed in 1996: (c)(3)(B) (g)(1)(A) (i)(3)(E)(ii)
- Amended by Pub. L. 103–66Parts changed in 1993: (c)(2) (c)(7) (i)(3)(E)(iv)
- Amended by Pub. L. 101–508Parts changed in 1990: (i)(3)(B) (k)(1) (m)(3)(A)
- Amended by Pub. L. 101–239Parts changed in 1989: (i)(3)(B) (i)(3)(D)
- Amended by Pub. L. 100–647Parts changed in 1988: (e)(1)(A)(ii) (g)(1)(A) (g)(1)(C) (g)(2)(A) (g)(3) (h)(4) (i)(1) (i)(3)(D) (i)(6)(C) (j)(6)(A) (j)(10) (j)(12) (k)(3) (m) (m)(1) (m)(2) (m)(3)(A)
- Amended by Pub. L. 100–203Parts changed in 1987: (k)
- Added by Pub. L. 99–514
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter E Accounting Periods and Methods of Accounting
- Part II METHODS OF ACCOUNTING
- Subpart C Taxable Year for Which Deductions Taken
Nearby sections
- § 467 Certain payments for the use of property or services
- § 468 Special rules for mining and solid waste reclamation and closing costs
- § 468A Special rules for nuclear decommissioning costs
- § 468B Special rules for designated settlement funds
- § 469 Passive activity losses and credits limited
- § 470 Limitation on deductions allocable to property used by governments or other tax-exempt entities
Official notes
The Law Revision Counsel's notes for this section (amendments, effective dates and related laws) are long, so they have their own page.