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What is considered passive income?

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Level 3

Are interest, and pension and annuity payments considered passive income for the purpose of taking rental losses which are considered passive activity losses? In other words if the TP's only income is from interest and pensions, can they take up to a $25,000 loss from their rental losses?

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Highlighted
Level 15

Interest is portfolio income.

Pension/annuity is ordinary income.

The ability to take the $ 25K is predicated on overall income limits.

Apples & oranges here...

Former Chump... umm.... AllStar.
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Highlighted
Level 15

You are looking at two provisions for §469.  Passive activity income and loss should not be confused with what is technically portfolio income (e.g. portfolio interest, dividends, capital gain/loss, etc.) but often referred to as passive income.

One of the provisions is to offset income and losses of passive activities.  What constitutes passive activity is defined under §469(c) and the regulations thereunder:

(c) Passive activity defined For purposes of this section—

(1) In general The term “passive activity” means any activity—

(A) which involves the conduct of any trade or business, and
(B) in which the taxpayer does not materially participate.

The other provision is the special allowance of $25,000 under §469(i) as Anna explained.  The allowance is phased out based on the taxpayer's AGI adjusted for the items stipulated under that code section, except it's not available to taxpayers who file MFS but do not live apart from the spouse.  Generally, the software would make those adjustments without your intervention.

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Still an AllStar
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Level 15

(Jensen... ain't  that what I said?  🤣  just without as many words and without all that lovely "Code speak")

Your precise explanation & documentation is always impressive.

Former Chump... umm.... AllStar.
If a post answers your question, click on *Accept as solution* for future searches
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Level 15

Exactly as you said, like I said, lol.  Stop pulling my leg. 🤣

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Still an AllStar
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Level 15

Then what fun would I have ?

Stay safe, my dear.

Former Chump... umm.... AllStar.
If a post answers your question, click on *Accept as solution* for future searches