Passive Income

Income from rental properties, limited partnerships, or businesses you don't materially participate in. Subject to special tax rules.

Full explanation

Passive income is earnings from a trade or business in which you do not materially participate, or from rental activities (rental income is generally passive regardless of participation). Passive losses can only offset passive income — they cannot offset wages, interest, or other active/portfolio income. Unused passive losses carry forward until you dispose of the entire activity. Exception: taxpayers with AGI under $100,000 can deduct up to $25,000 of rental losses against active income (phases out between $100,000-$150,000 AGI). Real estate professionals who meet material participation tests may treat rental income as non-passive.

Source: IRS Publication 925 — Passive Activity and At-Risk Rules

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“How does passive incomeaffect my taxes?”

Tax education only. Source: IRS Publication 925 — Passive Activity and At-Risk Rules.