Definition: Income from a passive activity for federal tax purposes, generally involving a trade or business without material participation or a rental activity subject to the applicable exceptions.
Example
An owner receives income from a rental activity that remains passive under the tax rules.
Keep the distinction clear
Interest and dividends are generally portfolio income rather than passive-activity income. The tax classification does not simply mean money earned with little effort.
Related terms
Income · Taxable Income · Tax Shelter
Keep studying
References: IRS Topic 425: passive activities
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