If a real estate investor is an active participant, passive tax losses from the investment may sometimes be used to offset which of the following?

The correct response indicates that passive tax losses from an investment can indeed be used to offset both other real estate investments and capital gains, reflecting the interconnected nature of these financial concepts.

Real estate investments typically fall under the category of passive activities, leading to certain tax implications. When an investor is classified as an active participant in their real estate venture, they may have more opportunities to utilize their tax losses. In particular, the IRS allows individuals who meet specific criteria to deduct passive losses against other income, such as any gains from the sale of real estate or other capital assets. The rationale behind this is that the investor is actively involved, which can warrant a more favorable tax treatment.

This interaction between passive losses and both real estate and capital gains demonstrates how real estate tax regulations can create opportunities for tax efficiency for active investors. By allowing the offsetting of these losses against a broader range of income, tax laws aim to promote investment in real estate while mitigating some risks associated with passive investments. Thus, the comprehensive scope of tax efficiency options is encapsulated effectively by the choice that includes all avenues for loss offsetting.