Passive Activity Credit

Passive Activity Credit means:
the amount by which the sum of a taxpayer's allowable credits from passive activities exceeds the portion of his or her regular income tax liability for the year that is attributable to passive activities. A portion of the disallowed credits must be allocated ratably to each activity that provides a credit.

A credit is a passive activity credit if it:

1. arises in connection with the conduct of a passive activity, 2. is one of the following:

(a) general business credit, (b) credit allowed a possessions corporation (Section 936) for income taxes in Puerto Rico or the U.S. Virgin Islands, (c) orphan drugs credit, (d) credit for fuel from a nonconventional fuel source, (e) alcohol fuels credit, (f) research and experimental credit, or.

(g) low-income housing credit, and.

3. is allocable to a passive activity for the tax year in question.

See also the entries Income Tax and State Income Tax in the American Encyclopedia of Law.