Passive Income and Losses

[GTS1101]

I am helping out a client who has passive losses from ownership in a S corp and rental properties. She has portfolio income (interest income) generated by her investment in these properties that she would like to offset against the passive losses. Is there any loopholes or any way to deduct the portfolio income as passive income since it is generated from the passive activity. From what I could read in the code it says no. Just wondering if anyone heard of any cases where this was challenged in tax court or if anyone has found a loophole.

Thanks!

GTS1101

[Roland Slugg]

No. Passive losses can only be offset by passive income. If course, a passive activity's current and prior years' unused passive losses may be deducted in full when that passive activity is completely disposed of in a taxable transaction.