passive activity

Passive Activity

An activity from which you have the potential to profit but in which you do not physically participate.

Notes:

The income from rental properties is a good example of a passive activity. Making a distinction between passive and active income is important because you can claim a passive loss only against income generated from passive activities. You cannot claim a passive loss against active income.

See also: Active Income, Income, Passive Income, Portfolio Income

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passive activity

1. An activity involving a trade or business in which the taxpayer does not materially participate.

2. Any engagement in real estate rental activity.