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Week #3 Active income income derived from the direct efforts of the individual, such as wages, salaries, commissions, etc Passive income income from passive activities, such as limited partnerships and rental real estate Portfolio income income from stocks, bonds, annuities, royalties, dividends, interest etc Material participation is the involvement of a taxpayer in the operations of an activity on a regular, continuous, and substantial basis. The determination of material participation is important because it may establish whether an activity will be characterized as a passive activity or a nonpassive activity. There are seven tests for material participation. Satisfaction of any one qualifies as material participation: 1. Taxpayer participates more than 500 hours per year. 2. Taxpayers participation is substantially all of the work done in the activity. ... View Full Document

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