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During 1999, I invested some seed capital into a startup company. This week I received the K-1 form declaring my portion of the losses. While filling in my tax forms, I realized that since this is a 'passive loss', I cannot deduct those losses against 'regular income', 'investment income', or 'capital gains'. The loss can be carried over from year to year indefinitely. (or until the investment is 'closed' - i.e. sold)

How can I generate 'passive income' to balance against this 'passive loss' ?
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PAL's are suspended indefinitely until such time as:

1. the same investment turns PIG (passive income generator).

2. a different investment turns or is a PIG.

3. you sell the PAL investment which will release the PAL dollars.

The easiest way to generate a PIG is to get involved in unleveraged real estate activities.

TheBadger
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I understand that I need a Passive Income Generator, but are there any easy ways to do this ?

Would a REIT divident count as Passive Income ?

What do you mean by 'unleveraged real estate activities' ?
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Would a REIT divident count as Passive Income ?

Sorry, no.

What do you mean by 'unleveraged real estate activities' ?

Owning a piece of real estate and collecting rents of some form. "Unleveraged" meaning no debt on the property. Inevitably, the moment you put debt on the rental property it switches from PIG to PAL.

TheBadger

P.S. Suggestion --- buy a condo in your favorite vacation area for cash; put it in the local rental program; get your 3% to 5% PIG & a free vacation from the property.

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Hmmm... What if I buy a condo a few blocks from my house. They cost about $100-$110k and rent for about $1000-$1200/mo. (lets say $100k and $1000 for the calculations)

So :

Income: $12,000 rent

Expenses: $1500 taxes, $1000 insurance, $1200 HOA fees, $1200 maintenance, etc...

Net Gain: $12,000 - $4900 = $7100 (or a 7.1% yield)

Does that $7100 count as passive income ? Even if I manage the property myself and perform the maintenance myself ? Do my calculations seem right ? Am I missing anything ? Any other expenses that I may be overlooking ?
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<Does that $7100 count as passive income ? Even if I <manage the property myself and perform the <maintenance myself ? Do my calculations seem right ? <Am I missing anything ? Any other expenses that I may <be overlooking ?

Generally rental real estate activities are passive activities. You can add advertising costs, damage costs (although your maintenace costs seems very adequate), etc. This plan may well generate passive income, the question is, is it worth it to you for the purposes of offseting passive losses? Are you particularly interested in being a landlord? Would you be better served overall by investing that 100K elsewhere, even if it meant continuing to carry some suspended passive losses.

JayhawkFool
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Generally rental real estate activities are passive activities. You can add advertising costs, damage costs (although your maintenace costs seems very adequate), etc. This plan may well generate passive income, the question is, is it worth it to you for the purposes of offseting passive losses? Are you particularly interested in being a landlord? Would you be better served overall by investing that 100K elsewhere, even if it meant continuing to carry some suspended passive losses.

These rules of 'passive' versus 'active' intrigue me. What can be more passive than investing in stocks ? Yet, real estate investing which is so much more active is considered 'passive' :-) How can buying a condo be passive yet buying a REIT that owns condos not be passive :-)

I don't want to be a landlord, but I would like to find some way to generate 'passive' income.

Also, I forgot depreciation on the 100K condo.

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