Passive Income

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Passive income is:

  • Income from a business you do not materially participate in
  • Rental income (even if you materially participate in, unless you're a real estate professional)

It's taxed like interest income, i.e. it's subject to regular income tax but not payroll or self-employment taxes.

  • it's separated from other sources of income because losses from passive activities can only be used to offset income from other passive activities
    • the exception is that if you or your spouse actively participate in a rental activity then up to $25k of losses from that activity can be used to offset your non-passive income
    • this $25k is reduced by 50% of the amount by which your modified adjusted gross income exceeds $100k
    • if you actively participate and your passive loss is more than $25k then the excess passive loss can be carried forward to be used as a deduction in future years

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  • 15 days ago by vince