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Passive Activities

The passive activity rules generally limit your losses from passive activities to your passive activity income.

There Are Two Kinds of Passive Activities: Rentals, including both equipment and rental real estate, regardless of the level of participation and businesses in which the taxpayer does not materially participate on a regular, continuous, and substantial basis.

The passive activity rules generally limit your losses from passive activities to your passive activity income. Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate during the tax year, or you have a rental activity.

Passive Activity

Income and losses on a tax return are divided into two categories:

Passive: Rentals and businesses without material participation. A limited partner is generally passive due to more restrictive tests for material participation. As a result, limited partners will generally have passive income or losses from the partnership.

Non-passive: Businesses in which the taxpayer materially participates. Also, salaries, guaranteed payments, 1099 commission income and portfolio or investment income are deemed to be non-passive. Portfolio income includes interest income, dividends, royalties, gains and losses on stocks, pensions, lottery winnings, and any other property held for investment.

Equipment leasing
Rental real estate (with some exceptions)
Sole proprietorship or farm in which the taxpayer does not materially participate
Limited partnerships with some exceptions
Partnerships, S-Corporations, and limited liability companies in which the taxpayer does not materially participate
Salaries, wages, and 1099 commission income
Guaranteed payments
Interest and dividends
Stocks and bonds
Sale of undeveloped land or other investment property
Royalties derived in the ordinary course of business
Sole proprietorship or farm in which the taxpayer materially participates
Partnerships, S-Corporations, and limited liability companies in which the taxpayer materially participates
Trusts in which the fiduciary materially participates
Have a tax question? Contact one of our Tax Advisors!
Buddy Fricke, EA

Buddy Fricke, EA

Accredited Tax Advisor

Buddy Fricke, EA

Accredited Tax Advisor
Buddy Fricke, EA

Buddy is a graduate of Auburn University. He holds a Bachelors of Science degree in Mathematics.

Direct Phone: (256) 586-4141
Mary L. Penton, EA

Mary L. Penton, EA

Tax Department

Mary L. Penton, EA

Tax Department
Mary L. Penton, EA

Mary is a graduate of the University of Alabama Huntsville. She holds a Bachelors of Science in Accounting.

Direct Phone: (256) 586-4135
Anthony Nash, CPA

Anthony Nash, CPA

Chartered Global Management Accountant

Anthony Nash, CPA

Chartered Global Management Accountant
Anthony Nash, CPA

Anthony is a graduate of the University of Alabama in Tuscaloosa. He holds a Bachelors of Science in Accounting.

Direct Phone: (256) 586-4153
Jonathan R. Neighbors, EA

Jonathan R. Neighbors, EA

Tax Department

Jonathan R. Neighbors, EA

Tax Department
Jonathan R. Neighbors, EA

Jonathan is a 2005 graduate of the University in Tuscaloosa. He received a Bachelor of Science degree in Accounting.

Direct Phone: (256) 586-4157