Active Income and Losses
Those for which the taxpayer perform services. Examples are wages, salaries, tips, bonuses and income and losses from business and partnership activities in which the taxpayer materially participates.
Passive Income and Losses
Those from business activities in which the taxpayer does not materially participate, and all rental activities (except those of qualified real estate professionals).
Portfolio Income and Losses
Those from such sources as dividends, interest, capital gains and losses, and royalties.
Rental Income (6)
• Reported on Schedule E, considered UNEARNED income.
• No §179 deduction may be taken on Schedule E rental property.
• Income received by the taxpayer for allowing another person's use of the taxpayer's property.
• Rental income includes advance rental payments, late payments and current payments.
• Payments received for lease cancellation and forfeited security deposits are rental income the year received or forfeited.
• Rental income is considered passive income for purposes of the passive loss rules, except for qualified real estate professionals.
• A payment received for the right to exploit a taxpayer's ownership of natural resources or a taxpayer's literary, musical, or artistic creation.
• An interest in the oil and gas in place that entitles the holder to a specified fraction, in kind or in value, of the total production from the property, free of any expense of development and operation.
S Corporation (2)
• A qualified small business corporation that has elected special tax treatment under sub-chapter S of the Internal Revenue Code.
• Unlike most corporations, which are taxable entities themselves, S corporations pass income, losses and deductions through to shareholders to report on their individual returns.
• A tax entity created by a trust agreement.
• This entity distributes all or part of it's income to beneficiaries as instructed by the trust agreement.
• This entity is required to pay taxes on undistributed income.
Vacation Home (3)
• The tax code places restrictions on taxpayers who rent their residences or vacation homes to others for part of the tax year.
• The restrictions may result in scaling down of expense deductions for such taxpayers.
• Considered a RESIDENCE if used for personal use more than 14 days or more than 10% of the days the house is rented.
• Rental income must be reported if rented for 15 days or more.
Real Estate Professional (2)
• More than half the services performed in all trades or businesses were performed in real property trades.
• Performed more than 750 hours of services in real property trades.
Non-Passive Income (3)
• Portfolio Income
• Personal Service Income
• Other Income