HRB-19 Passive Income
|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.
|Royalty (2)||• 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.
|Trust (3)|| • 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)|| Includes:|
• Portfolio Income
• Personal Service Income
• Other Income