Summary Unless you materially participate, income and losses from Craft Pod are passive under section 469. Passive losses can offset other passive income but not wages or portfolio interest and dividends.
IRS definition
A passive activity is any business in which you do not materially participate plus most rental activities. The IRS lists seven separate tests for material participation in Publication 925.
How Craft Pod income is classified
For typical investors the Pod is passive. Bonus depreciation operating profits or losses appear as passive items on your annual statement.
Using passive losses
Passive losses can offset passive income from other sources or suspended passive losses. They cannot offset salary or active business profits. Suspended losses eventually unlock upon redemption or disposal of your interest.
Common sources of passive income
• Net rent from real estate you own but do not manage day-to-day
• Cash distributions from a limited partnership where you are a limited partner
• Royalty checks from a book or film when you are not involved in ongoing promotion
• Lease payments from equipment you own but another company operates
Any of these can absorb depreciation or other losses that flow through from Craft Pod.