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Transferable Tax Credits for Passive Income Investors

Quick answer

Individuals with net passive income from rentals, limited partnerships or private equity K-1s can buy transferable credits under IRC §6418 and use them against the federal tax attributable to that passive income. Wages, interest, dividends and stock gains are not passive, so a purchased credit generally cannot offset tax on them. A CPA computes the limit on Form 8582-CR.

If you earn net passive income from rental real estate, limited partnerships or private equity K-1 business income, a purchased credit may offset the federal tax attributable to that income. If your income is mostly wages and portfolio income, it will not. We say so up front.

The rule: for individuals, purchased credits are treated as passive activity credits (Treas. Reg. §1.6418-2(f)(3)). The IRS says they generally can only offset passive income tax liability and that most taxpayers do not have much of it (IRS Transferability FAQ, Q15).

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What we help with

Screening: how much tax is attributable to your passive income.
Sizing a purchase to the allowed amount, not to your whole tax bill.
Coordinating with your CPA, who reports the credit on Form 8582-CR and Form 3800.

Educational information, not tax advice. See our disclaimer.

Guides for passive income investors

Section 469 and Transferable Credits: What Individual Buyers Need to Know
How §469 limits individuals who buy §6418 credits: the regulation, Form 8582-CR and why only tax on passive income can be offset.
Why Transferable Tax Credits Can't Offset W-2 Income
Why wages cannot be offset by purchased clean energy credits: §469, portfolio income, the IRS FAQ and what to ask your CPA instead.
K-1 Passive Income From Real Estate or Private Equity: When Purchased Credits Can Help
How passive K-1 income from real estate or private equity can make room for purchased tax credits, what counts and how to estimate passive tax.
At-Risk Rules and Transferable Credits: What Buyers Do and Do Not Have to Test
How the at-risk rules (§465, §49) interact with §6418 credits: what the seller tests, what buyers do not recompute and where recapture arises.
Carryback and Carryforward Rules for Purchased Tax Credits
How unused credits carry back and forward under §39, the 3-year back and 22-year forward rule for applicable credits and passive carryovers.
Do Purchased Tax Credits Reduce the 3.8% Net Investment Income Tax?
Purchased tax credits generally do not reduce the 3.8% net investment income tax. Here is why under §1411 and §38(c), and what they can still offset.
Real Estate Professional Status and Purchased Tax Credits
Real estate professional status under §469(c)(7) changes how rentals are treated, but it does not by itself make a purchased credit usable against wages.
How to Document Your Passive Income Before Buying Tax Credits
Individuals can use purchased credits only against tax on passive income. Here is the evidence to gather before you sign: K-1s, Schedule E, Form 8582.
Can a Trust or Estate Buy Transferable Tax Credits?
Trusts and estates face the passive activity rules, compressed brackets and fiduciary duties. See when a purchased tax credit can help and what to document.
Sold a Rental Property or Business Interest? How a Purchased Tax Credit May Apply to the Gain
Sale of a rental property or business interest can create passive income that supports a purchased tax credit. How §469 treats the gain, and its limits.
How to Offset Passive Income Taxes With Purchased Tax Credits
How individuals can offset tax on passive income by buying transferable §48E credits: §469 rules, limits, worked examples and alternatives. Updated Nov 2026.

Frequently asked questions

Can I use purchased tax credits to offset passive income?

Yes, within limits. An individual's purchased §6418 credit can generally offset only the federal income tax attributable to net passive income, computed on Form 8582-CR. It cannot offset tax on wages, interest, dividends or stock gains.

What counts as passive income?

Income from rental activities and from businesses in which you do not materially participate, which includes most limited partnership and private equity K-1 business income. Wages, interest, dividends, royalties and stock gains are not passive.

Does Veritas sell investments?

No. Credits are bought for cash from third-party sellers, and Veritas does not sell securities or give investment advice. Your CPA confirms whether a purchase fits your return.

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