Here are some guides to whether an activity is a business or hobby.
https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a...
https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses
You are a business if you are engaged in an "ongoing trade or business" meaning you do things that businesses do; you seek out new customers, you try to make a profit, you advertise, and generally act in a "businesslike manner". There is rarely a black and white distinction, it is the overall culmination of factors.
It's not a question of whether you are an active or passive participant in your business, but whether you are a business at all.
Then, there is a separate question over when an investor/day trader performs so much trading activity that they can be considered self-employed and use a schedule C to deduct expenses. (The profit and loss from capital investing is still reported on schedule D, but a trader who makes trading their "business" can sometimes deduct other expenses like an office, computer, and expenses for doing investment research.)
Buying and selling property (which this is, even though the property is intangible) creates capital gains and losses which are reported on schedule D. Nothing happens on your tax return when you buy something. When you sell it, you have a capital gain or loss. You have a gain if you sell the property for more than you paid for it (your adjusted cost basis). If you have carrying expenses in the mean time, you can "capitalize" your expenses (add them to your cost basis) but this sometimes requires sending a written statement to the IRS each year attached to your tax return explaining what costs are being capitalized to which property assets.
(A simple example is buying a vacant lot for investment purposes and hoping to sell it later. In the mean time, you pay property taxes and expenses to keep the lot cleared and free of other people's trash. You generally can't deduct those expenses on schedule C because you aren't an active enough investor to use a schedule C. But you can capitalize the expenses by adding them to the cost which reduces your taxable gain when you sell. This requires attaching a statement to your tax return. Domain names seem similar in concept.)
Based on your statement, you probably would not qualify to use schedule C for your expenses. If you sell any domains, you have a capital gain on schedule D. Whether you can capitalize your annual carrying costs without having previously reported an election to do so on previous tax returns would require a professional to advise you.
How have you reported income and paid taxes on the domains you previously sold?
