7917. How do the passive loss rules and other limitations on the use of credits interact with each other?Nuco Employeercline202014-07-07T22:39:00Z2014-07-07T22:39:00Z13291877Summit Business Media154220214Site Map/Investments/Special Rules/Limitation on Loss Deductions/Passive Loss RuleTaxFactsDefaultArticle123251295-00-tf2.xml1295.00;#1958;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2How do the passive loss rule and other limitations on the use of credits interact with each other?30600.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T22:42:28Z7917. How do the passive loss rules and other limitations on the use of credits interact with each other?The IRC seems to provide that credits must be allowable under the limitations that apply to a particular credit (e.g., the general business credit limitation) before the credit enters into the calculation of the amount of credits attributable to passive activities.IRC Sec. 469(d)(2). Then, if the credit is allowable under the passive credit limitation (i.e., passive credits may offset only tax liability attributable to passive activities) or the $25,000 rental real estate exemption (see Q 7921), the credit would become subject to overall limitations that apply to all credits (e.g., credits may not reduce regular tax liability to less than tentative minimum tax liability). This appears to be consistent with explanations contained in committee reports for TRA ’86.See Sen. Rep. 99-313, 1986-3 CB (vol. 3) 713, 724 and Conf. Rep. 99-841, 1986-3 CB (vol. 4) 137, 143. Planning Point: However, temporary regulations seem to provide that a credit must be allowable under the passive loss rules before the credit is taken into consideration under the limitations that apply to a group of credits (e.g., the general business credit limitation).Temp. Treas. Reg. §1.469-3T. The reports go on to say that if the credit is otherwise allowable under the passive loss rules (including the $25,000 rental real estate exemption), but is disallowed when aggregated with nonpassive credits because of other limitations (e.g., credits may not reduce regular tax liability to less than tentative minimum tax liability), the passive loss so disallowed becomes a nonpassive credit arising in that year. The treatment of the credit is then determined by the general rules that apply to the credits, including carryover rules, and not under the passive loss rules. While less than clear, the temporary regulations seem to be in accord.See Temp. Treas. Reg. §1.469-3T.See Q 7918 concerning the interaction of the limitations on the “at risk” rules, the passive loss rules, and the deductibility of losses in excess of basis with respect to investment in a partnership or S corporation.