Oregon Administrative Rules
Chapter 150 - DEPARTMENT OF REVENUE
Division 314 - INCOME TAXATION GENERALLY GENERAL PROVISIONS
Section 150-314-0110 - Allocation of Oregon Modifications to Passive Activity Losses

(a) Modifications to Federal Passive Activity Losses. Modifications that may apply to passive activities of individuals include but are not limited to the following:

(b) Modifications that may apply to passive activities of a closely held corporation or personal service corporation include but are not limited to the following:

(a) Modifications of Passive Losses by a Nonresident: In the case of a nonresident, losses resulting from passive activities derived from or connected with Oregon sources as defined in ORS 316.127 are deductible for Oregon purposes, subject to the provisions of IRC Section 469. The loss is modified by the modifications, additions and subtractions provided for in ORS Chapters 314 and 316 allocable to the passive activity. Sections (2) and (4) of this rule shall be followed regarding which additions, subtractions and modifications are allocable and how the transition rules and passive activity credits are applied. Section (7) of this rule shall be followed regarding the computation of the Oregon passive activity loss.

Example: John is a nonresident of Oregon and has rental property in both Oregon and California. His loss from all rentals is $50,000 and from his Oregon rental $10,000. Federal law allows a deduction of up to $25,000 for rentals. John would show $25,000 loss in the federal column of Form 40N and $10,000 loss in the Oregon column of Form 40N. John claims the $10,000 loss for Oregon because the loss for a nonresident from Oregon sources is treated in the same manner as a passive loss for a full-year resident.

In the case of a nonresident, losses resulting from passive activities derived from or connected with sources outside Oregon are not deductible for Oregon purposes, regardless of a later change in the taxpayer's residency.

Example: Tony is currently a full-year resident of Oregon. He moved to Oregon from California on December 15th of the prior year. In his last year in California, Tony incurred a passive loss from a California based investment. He was unable to claim the loss in the year incurred due to the passive loss limitations. Tony may not carry his loss forward to his Oregon return, because he was not a resident of Oregon in the year the loss was incurred and nonresidents can only carry forward passive losses from Oregon sources.

(b) Modification of Passive Losses by a Part-year Resident: In the case of a part-year resident, losses resulting from passive activities carried on during the period the taxpayer is a resident plus those derived from or connected with Oregon sources as defined in ORS 316.127 during the period the taxpayer is a nonresident are deductible for Oregon subject to the provisions of IRC Section 469. The loss is modified by additions, subtractions and modifications provided for in ORS Chapters 314 and 316 allocable to the passive activity. Sections (2) and (4) of this rule shall be followed regarding which additions, subtractions and modifications are allocable and how passive activity credits are applied. Section (7) of this rule shall be followed regarding the computation of the Oregon passive activity loss.

Example: Steve moved to Oregon on July 1 and is a part-year resident of Oregon. He has rentals in both Oregon and California. His loss from the California rental is $24,000 incurred ratably throughout the year ($2,000 per month). His loss from the Oregon rental is $10,000.

Steve would show the maximum $25,000 loss for rentals in the federal column of Form 40P. He would show $22,000 loss in the Oregon column of Form 40P. The Oregon loss consists of $10,000 loss for the Oregon rental and $12,000 loss ($2,000 x 6) for the California rental incurred from July 1 to December 31, the period in which Steve was a resident.

Example 1: Tom has an adjusted gross income of under $100,000. He has a $26,000 passive activity loss from rental property acquired in 1987. The passive loss limitations in IRC Section 469 will allow Tom to use $25,000 of this loss to offset current year income from other sources. The remaining $1,000 will be carried forward for federal purposes.

Tom has $2,000 less depreciation for Oregon than for federal on the rental property. His Oregon passive activity loss is reduced to $24,000 (26,000 - 2,000). An addition of $1,000 is required on the Oregon return. This represents the difference between the allowable federal deduction of $25,000 and the allowable Oregon deduction of $24,000. The $1,000 addition is shown as an "Other addition ... Oregon passive loss" on the Oregon return. Tom does not show an addition for depreciation. He will not carry forward any of the loss for Oregon purposes.

Example 2: Larry has an adjusted gross income of under $100,000. He has a $40,000 passive activity loss from rental property acquired in 1987. For federal purposes, Larry may use $25,000 of the loss to offset income from other sources. He carries forward the $15,000 balance.

Larry has $3,000 less depreciation for Oregon than for federal on the rental property. His Oregon passive activity loss is reduced to $37,000 (40,000 - 3,000). Larry then applies the federal passive loss limitations of section 469 of the Internal Revenue Code, and shows the maximum $25,000 loss on his Oregon return. Because this is the same passive loss shown on the federal return, no modification is needed. Larry may carry forward the $12,000 balance of the loss (37,000 - 25,000). Larry does not show an addition for depreciation on the return.