In tax terms, if an investor owns multiple properties, how can they utilize passive activity losses?

Utilizing passive activity losses involves specific rules set by the IRS to manage how these losses can offset income. When an investor owns multiple properties, the correct approach is to offset passive losses against other passive income generated from any rental properties owned by the investor. This means that if an investor has passive income from one rental property, they can use the losses incurred from another property to reduce their taxable income, provided both income sources are categorized as passive activities.

This is significant because passive losses can accumulate if they exceed the income generated by a property in a given tax year, but these losses may not be used to offset ordinary income or wages directly. Instead, they remain tied to passive activities until they can be utilized against passive income, allowing investors to manage their overall tax liability more effectively.

In contrast, passive losses can't be mixed with active income sources or other income types unless specific tax rules are met, underscoring why the correct option centers around passive income relations rather than broader income classifications.