Treatment of former passive activities
For purposes of this section—
(1) In general
(1)In general#
If an activity is a former passive activity for any taxable year—
(A) any unused deduction allocable to such activity under subsection (b) shall be offset against the income from such activity for the taxable year,
(B) any unused credit allocable to such activity under subsection (b) shall be offset against the regular tax liability (computed after the application of paragraph (1)) allocable to such activity for the taxable year, and
(C) any such deduction or credit remaining after the application of subparagraphs (A) and (B) shall continue to be treated as arising from a passive activity.
(1)(A)#
any unused deduction allocable to such activity under subsection (b) shall be offset against the income from such activity for the taxable year,
(1)(B)#
any unused credit allocable to such activity under subsection (b) shall be offset against the regular tax liability (computed after the application of paragraph (1)) allocable to such activity for the taxable year, and
(1)(C)#
(2)Change in status of closely held C corporation or personal service 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.
(3)Former passive activity#
The term “former passive activity” means any activity which, with respect to the taxpayer—
(A) is not a passive activity for the taxable year, but
(B) was a passive activity for any prior taxable year.
(3)(A)#
is not a passive activity for the taxable year, but
(3)(B)#
was a passive activity for any prior taxable year.