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be treated as a deduction or credit allocable to such activity in
the next taxable year."
Section 469(f)(2) provides:
(2) Change in status of closely held C
corporation or personal corporation.--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.
Section 469(g)(1)(A) provides that, in the taxable year in
which a taxpayer disposes of his entire interest in any passive
activity in a transaction where all the gain or loss realized on
such disposition is recognized, then generally, the excess of--
(i) any loss from such activity for such
taxable year (determined after the application of
subsection (b)), over
(ii) any net income or gain for such taxable
year from all other passive activities (determined
after the application of subsection (b)),
shall be treated as a loss which is not from a passive
activity.
Thus, the usual result upon a taxable disposition of a passive
activity is that the taxpayer may use any remaining suspended PAL
allocated to that activity first against passive income from the
same activity, then against net passive income from other passive
activities, and then as a nonpassive loss.
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Last modified: May 25, 2011