Ordinary Income vs. passive income

[llecca]

I was told that rental income can be reported as ordinary income rather than passive income. I would like to know how to do that for tax purpose. 

[DoninGA · Accepted solution]

Rental income is always passive income unless you have a business as a real estate professional.

IRS Publication 527 Residential Rental Property page 13 - https://www.irs.gov/pub/irs-pdf/p527.pdf#page=13

In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities.

[llecca]

Thank you. I will read the IRS publication you refer me to.

[Carl]

Long term residential rental real estate income is always passive; especially if you only have one rental property. But generally, if you have three or less rental properties you'll have a hard time proving it's not passive if you're not a real estate professional.

To qualify as non-passive income, you have to provide services that are "directly beneficial to the tenant" on a recurring basis. For example, making the beds every morning, or providing something such as a "continental breakfast" every day. Or laundry services.

Things that don't count would include yard service. You're going to cut the grass anyway, even if the property sits vacant for six months.