passive income

(redirected from Passive Investment Income)

Passive income

Income (such as investment income) that does not come from active participation in a business. Specified by the U.S. tax code.

Passive Income

Income from a venture in which an individual does not directly participate. The most common types of passive income are rents and income from a limited partnership. Some analysts consider income derived from securities such as dividends and coupons to be passive income, while others put it into a separate category as portfolio income. Passive income is taxable, but it is often treated differently than active income.

passive income (loss)

A special category of income (loss) derived from passive activities, including real estate, limited partnerships, and other forms of tax-advantaged investments. Investors are limited in their deduction of passive losses against active sources of income, such as wages, salaries, and pension income.

Passive income.

You collect passive income from certain businesses in which you aren't an active participant.

They may include limited partnerships where you're a limited partner, rental real estate that you own but don't manage, and other operations in which you're an investor but have a hands-off relationship.

For example, if you invest as a limited partner, you realize passive income or passive losses because you don't participate in operating the partnership and have no voice in the decisions the general partner makes.

In some cases, income from renting real estate is also considered passive income. On the other hand, any money you earn or realize on your investment portfolio of stocks, bonds, and mutual funds is considered active income. That includes dividends, interest, annuity payments, capital gains, and royalties.

Any losses you realize from selling investments in your portfolio are similarly active losses.

Internal Revenue Service (IRS) regulations differentiate between passive and active income (and losses) and allow you to offset passive income only with passive losses and active income with active losses.

passive income

See passive activity income.

Passive Income

Passive income is income from business activities in which the taxpayer does not materially participate, and most rental activities. See also Material Participation and Portfolio Income.
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References in periodicals archive ?
The taxpayer represented that it was aware that having excess passive investment income could subject it to tax but was unaware that this could cause a termination of its S election.
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Private corporations--and by extension their owners--would be taxed on their passive investment income on the same basis as if they were individual investors in fully taxable accounts.
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8 percent tax on the lesser of passive investment income or modified adjusted gross income in excess of the threshold.
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Examples of non-core assets owned by a manufacturing or service company might include: real estate that is lying idle, or generating passive investment income from third parties; shares or bonds that are not related to the company's main line of business; subsidiaries or investments in other companies unrelated to the company's core business.
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In addition, a tax is imposed at the corporate level on excess "net passive income" of an S corporation (passive investment income reduced by certain expenses connected with the production of such income) but only if the corporation, at the end of the tax year, has accumulated earnings and profits (either carried over from a year in which it was a nonelecting corporation or due to an acquisition of a C corporation), and if passive investment income exceeds 25% of gross receipts.
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For most of its existence, the I&D tax was narrowly focused on passive investment income It was not intended in 1923 or thereafter to tax income earned from the performance of services, or other forms of investment income, such as capital gains or rents.
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A tax is imposed at the corporate level on excess "net passive income" of an S corporation but only if the corporation, at the end of the tax year, has accumulated earnings and profits and if passive investment income exceeds 25% of gross receipts.
Chapter 14: S Corporations

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