Definition: Income that is not classified as passive-activity income under the applicable tax rules. Earned business income from material participation is a common example.
Example
An owner materially participates in a trade or business and evaluates its income under the nonpassive rules.
Keep the distinction clear
Portfolio income is generally excluded from passive-activity income but has its own category. Rental income is generally passive unless an exception applies; ordinary wording such as passive investment is not controlling.
Related terms
Income · Taxable Income · Investment
Keep studying
References: IRS Publication 925: passive activity rules
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