Week 3 Assignment Solution Passive Losses: Classification of Income 7-7. Active income is income derived from the direct efforts of the individual, such as wages, salaries, commissions, tips, etc. Passive income is income from passive activities, such as income from the operation of a limited partnership in which an investor is a limited partner. Portfolio income is income from stocks, bonds, annuities, and royalties not derived in the ordinary course of a business. Dividends, interest, and the sale of stocks, bonds, etc., are portfolio income items. Passive Losses: Material Participation Defined 7-13. 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. Passive Losses: Rental Real Estate Activities
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