Is Rental Income Passive?

If you are looking to invest in real estate in Miami or elsewhere in FL, one of your questions might be whether the income you earn from renting out the properties is considered to be “passive” income or not.

There are a couple of facets to this topic we can consider. First, we will discuss whether rental income is passive from a tax filing standpoint. Then, we will talk about whether it is passive from a work standpoint.

Does the IRS Consider Rental Income Passive?

The IRS itself answers this question directly on its website, stating the following:

“In general, rental activities, including rental real estate activities, are passive activities even if you materially participate.”

The IRS adds:

“However, rental real estate activities in which you materially participate aren’t passive activities if you qualify as a real estate professional. Also, there’s a limited exception from the passive activity rules for rental real estate activities in which you actively participate. Active participation is a less stringent standard than material participation.”

If you want more information, you can take a look at Publication 925, Passive Activity and At-Risk Rules.

Is Rental Income Passive in Terms of Work Entailed?

Now you know that the IRS usually considers rental activities to be generating “passive” income. But you might be wondering whether rental income is “passive” in terms of the work it will require from you to maintain.

Actually, there is quite a lot of active work involved in owning a rental property. For starters, you will need to find and manage tenants. You also will need to maintain and repair the property as needed. Indeed, this is a prime consideration when you are trying to decide if you are ready to buy a rental property.

You can pass a lot of that work off to a property management company. But that doesn’t mean they can take over all of the work for you. And you will also need to manage the property management company itself, checking in on them as needed or responding to their requests for your input or decisions.

That may not be the same as working day in and day out yourself to manage your property, but it is considerably more involved than, say, owning some stocks that you hold for a long period of time. Ultimately, whether or not you think of that as “passive income” is up to you.

Buy Rental Properties in Florida with Competitive Financing

If you are prepared to handle the work involved with owning rental properties in Florida, it can be a very lucrative prospect. But making sure you get the most out of your investments starts with choosing the right property loans.

Lending Bankers Mortgage has a large network of lenders, and can connect you with a flexible, affordable property loan to buy your next Florida real estate. If you are ready to get started, please give us a call today at (786) 220-1100 to schedule your consultation.