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A passive activity is any business activity in which a person DID NOT materially participate and usually any rental activity. In most cases, if you are a limited partner, you are not treated as having materially participated in the partnership's activities for the year.
A full explanation as well as the IRS instructions for Schedule E can be found at the following:
If you are still in doubt after reviewing the instructions, please come back to me here, and I will be happy to assist you further.
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The thing is that the taxpayer did materially participate (spent more than 500 hours in the taxable year). So does that mean the income/loss is non-passive, instead of passive, even though the taxpayer has been marked as Limited Partner in K1.
Thank you for your follow-up question.
You are correct. If the taxpayer did materially participate, the income/loss would be non-passive.
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