Which of the following is an example of a passive activity?

A passive activity is typically defined as one in which a taxpayer does not materially participate in the business operations. This concept is particularly relevant in the context of tax reporting, since losses from passive activities can generally only be deducted against passive income, not against other sources of income.

Rental activities without material participation are a classic example of passive activities because the owner is not involved in the day-to-day operations or management of the rental property. This lack of active involvement means that the income generated from these activities is classified as passive income, which aligns directly with the definition of passive activities under tax law.

In contrast, trading stocks actively, working in a family business, and performing freelance services typically involve significant and ongoing participation by the individual or taxpayer. These activities generally do not meet the criteria for passive status, as they require active engagement and decision-making on the part of the individual, making them non-passive in nature.