Business Losses vs Passive Losses has been very controversial since the Tax Reform Act of 1986. This was the beginning of massive limitation on deducting certain "Passive Losses" against regular income. Consider some of the many restrictions, requirements to track basis, suspended losses and other issues as compared to a "sole proprietorship" or an active business run thru an entity such as an LLC, S Corp. Compare some of the differences when it comes to defining when a loss is considered a passive loss, vs a loss from an operating business in which the taxpayer actively participates on a regular basis.

How much different is it to be able to take losses when the taxpayer is not active in the business but merely a "passive investor"?