Is rental income generally regarded as passive income?

Rental income is generally regarded as passive income, which aligns with the tax classification unless the taxpayer materially participates in the rental activity. This classification stems from the IRS guidelines, which define passive activities as those that involve trade or business activities in which the taxpayer does not materially participate.

When a taxpayer is actively involved in managing and operating rental properties—such as making repairs, finding tenants, or managing the property—this may shift the income into the category of active income. However, in most cases, if the taxpayer does not engage in significant involvement, the rental income retains its passive status. This distinction is crucial for tax purposes, as passive income is treated differently in terms of deductions and losses.

Understanding this classification is important for tax planning and reporting, particularly for real estate investors or property owners who may engage in various levels of participation in their rental activities.