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Considering a Limited Partnership Investment? Watch Out for the Passive Activity Loss Rules

ARTICLE | August 19, 2026

Authored by Vasquez + Company

Investing in a limited partnership can be an attractive opportunity, offering liability protection and potential self-employment tax advantages. But before you commit, there is a critical tax consideration that could significantly affect your bottom line: the passive activity loss (PAL) rules. These federal rules can restrict your ability to deduct partnership losses, sometimes for years, and navigating the exceptions requires a careful understanding of material participation tests, suspended losses, and other key limitations. Whether you are a first-time investor or an experienced partner, knowing the rules before you invest can save you from costly surprises at tax time.

Read the full article here.

 

Our firm provides the information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. This article is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. 

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