What does passive income mean on the CPA exam?
Passive income. Income from an activity the taxpayer does not materially participate in, plus most rental income. It can only be offset by passive losses.
Defined against Sec. 469.
Which CPA exam sections use passive income?
Passive income appears in the REG section of the CPA exam.
Related terms
- passive activity: A trade or business in which the taxpayer does not materially participate, plus most rental activity.
- personal holding company income: Mostly passive income -- dividends, interest, rents, royalties -- which, with concentrated ownership, triggers a penalty tax on undistributed amounts.
- net investment income: Interest, dividends, capital gains, rents, royalties and income from passive businesses, less the deductions allocable to them.
- other comprehensive income: Gains and losses that bypass net income and sit in equity until realized, such as unrealized gains on available-for-sale debt securities and foreign currency translation.
- capital gain net income: Capital gains minus capital losses for the year, long-term and short-term combined.
- earned income: Compensation for personal services -- wages, or net earnings from self-employment.