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Do Your PALs have PIGs?

Do Your PALs have PIGs?

December 16, 2019
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Funny names aside, PIG/PAL Programs are a great tool for increasing tax-free income for those in the right circumstances.

PALs or Passive Activity Losses are a common occurrence with real estate holdings, where the losses from a property can exceed the revenue or gains in a given year.  Once those losses eclipse the gains they become Suspended PALs – and this is a bad thing.  A suspended PAL is tax write-off that can’t be exercised because there is no income to offset against it.  Moreover, per the Tax Reform Act of 1986, passive losses can only be offset by passive income. That means any losses to your earned income or your investment portfolio do not qualify.

The Bottom Line: There are investors out there who year after year carry forward losses with no hope of recouping those losses and getting the full tax benefit.

Enter PIGs or Passive Income Generators. The exact opposite of a PAL, a PIG is generating taxable income on an annual basis. However, if used properly in combination with a PAL, a PIG can generate tax-free income. In other words:

 

$1 PIG + $1 PAL = $1 Tax-Free Income

 

With the right PIG/PAL strategy you can offset all the losses you have been carrying forward and create a tax-free income event – a really good thing.

Want to learn about PIG/PAL strategies and how to calculate the investment amount needed to offset your losses?  Call us today.