However, the IRC stipulates that the passive loss restriction applies for each individual MLP.2 Thus, a limited partner is not permitted to combine passive losses from any other MLP or from any other source.3 The result of the passive loss restriction is that a limited partner’s loss can only offset income from the master limited partnership that caused the loss.
Congress has provided two avenues of relief from this restriction. If a limited partner has remaining passive activity losses, the losses are carried forward, and can offset future passive income of that MLP.4 Moreover, when a limited partner disposes of the entire interest in an MLP, any remaining passive losses may offset income from other sources.5
See Q 8010 to Q 8022 for a detailed discussion of the passive loss rules.
1. IRC § 469(d)(1); see also Lowe v. Comm., 96 TCM 502 (2008).