Business Tax Policy: Passive Activity Loss Limitations
In certain situations, the deduction for rental losses is limited under the federal passive loss rules. The State of Oregon follows the federal passive loss rules. As described in Portland City Code section 7.02.100 (K) and Multnomah County Code Section 12.100, “income” means the net income arising from any business, as reportable to the State of Oregon for personal income, corporation excise or income tax purposes, before any allocation or apportionment for operation out of state, or deduction for a net operating loss carry-forward or carry-back.
Therefore, the City and County would limit the passive losses in the same manner that they were limited on the Federal and Oregon Returns. Unused passive losses can be carried forward in the same manner as on the Federal and Oregon Returns.
Example: On their 2010 Federal Form 1040, Schedule E, an individual reports a rental loss on line 22 of $100,000. They report a deductible rental loss of $10,000 on line 23. Line 23 (line 26, if multiple properties exist) represents the City/County loss allowed in the current year and would be included on line 3 of the Combined Tax Return (SP-2010). The unused passive loss (if any) would be carried forward.
Note: Only losses that are reported on line 9 or line 19 of the Combined Tax Return can be treated as net operating losses for City/County purposes (and potentially deducted on line 10 and 20 of subsequent year returns).
6/28/11 Thomas Lannom
Date Director, Revenue Bureau