Below, learn what the IRS considers a passive rental activity for tax purposes. 

There must be an “activity,” not just a simple holding of an investment. Any trade or business activity in which the taxpayer “DOES NOT MATERIALLY PARTICIPATE” in actual OPERATIONS of the activity on a “REGULAR, CONTINUOUS, AND SUBSTANTIAL BASIS” is passive. This includes any limited partnership interest, which is always presumed passive. However, a taxpayer may rebut the assumption by showing he/she meets the material participation standards (see following paragraph). A rental activity, whether or not the taxpayer materially participates in its operation, is a passive activity – but some “rentals” are not considered rentals for this purpose (see "Rental Activity Exceptions”).