What are prior-year disallowed losses? The excess of the disallowed losses from the activity over the current net income from the activity. The previous year's disallowed losses from the activity plus the net loss from the activity. The excess of the net income from the activity over the net disallowed losses from the activity. Losses from an activity that were disallowed under the Passive Activity Loss (PAL) limitations in a prior year and carried forward to a current tax year.