Passive Activity

United States Tax Concept of Passive Activity

An activity in which the taxpayer does not materially participate. A passive activity is one defined in the Internal Revenue Code as one or more trade, business, or rental activities that the taxpayer does not materially participate in managing or running. Real estate rentals and limited partnerships are examples of passive activities. Passive loss rules apply to losses from passive activities. All income and losses from passive activities are grouped together on an income tax return, and generally loss deductions are limited to income or suspended until the passive activity that generated them is disposed of in its entirety.