1. What is Passive Income Tax?

Passive income tax is the tax levied on income earned from rental property, limited partnerships, or other enterprises in which a person is not actively involved. Unlike earned income, passive income is typically taxed differently and may qualify for certain deductions.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Passive\ Income \) — Income from passive sources in USD
• \( Tax\ Rate \) — Applicable tax rate as a decimal (e.g., 0.15 for 15%)

Explanation: The calculation multiplies your passive income by the applicable tax rate to determine your tax liability.

3. Importance of Tax Calculation

Details: Accurate tax calculation helps in financial planning, ensures compliance with tax laws, and helps avoid underpayment penalties or overpayment of taxes.

4. Using the Calculator

Tips: Enter your passive income amount in USD and the applicable tax rate as a decimal (e.g., 0.25 for 25%). Both values must be valid (income ≥ 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: What counts as passive income?
A: Common sources include rental income, royalties, dividends, interest, and earnings from businesses where you don't materially participate.

Q2: Are tax rates the same for all passive income?
A: No, different types of passive income may have different tax rates (e.g., qualified dividends vs. ordinary dividends).

Q3: Can passive income losses offset other income?
A: Generally, passive losses can only offset passive income, with some exceptions for real estate professionals.

Q4: Does this calculator account for deductions?
A: No, this calculates gross tax liability before any deductions or credits.

Q5: Should I consult a tax professional?
A: For complex situations or large amounts of passive income, professional advice is recommended.