What Is Passive Income (Taxes)?

For tax purposes, passive income is earnings from activities you don't materially participate in — like rental income or a business you're not actively involved in running. Passive losses can generally only offset passive income, not your wages or other active income. This is known as the passive activity loss rule. If your income is low enough (under $100,000 for rentals), you may be able to deduct up to $25,000 in rental losses. Suspended passive losses can be deducted when you sell the activity.