What does passive activity mean on the CPA exam?
Passive activity. A trade or business in which the taxpayer does not materially participate, plus most rental activity. Its losses can only offset passive income.
Defined against Sec. 469(c).
Which CPA exam sections use passive activity?
Passive activity appears in the TCP section of the CPA exam.
Related terms
- passive income: Income from an activity the taxpayer does not materially participate in, plus most rental income.
- trade or business: An activity carried on regularly, continuously and with a profit motive.
- at-risk amount: How much a taxpayer could actually lose in an activity: cash and property contributed, plus debt they are personally liable for.
- excess business loss: The amount by which a noncorporate taxpayer's aggregate business deductions exceed business income plus a threshold.
- capital asset: For tax, almost everything a taxpayer owns EXCEPT inventory, receivables, and depreciable or real property used in a trade or business.
- net operating loss: A year in which allowable deductions exceed gross income.