Is interest from private lending considered passive income?

[Andrew Angell]

I'm in a syndication that pays monthly distributions but will provide a K1 with paper losses due to depreciation.

I am looking to do some private lending where I would be receiving a 1099-INT from the borrower on interest paid.  

My understanding is that this would be earned income, and would not be offset by the K1 losses, but I'm getting some conflicting info on that.

I'm going to talk to my CPA, of course, but just wanted to and prepare a little bit for that conversation ahead of time.  

Any information on this would be greatly appreciated.  Thanks!

[Michael Plaks]

Quote from @Andrew Angell:

I'm in a syndication that pays monthly distributions but will provide a K1 with paper losses due to depreciation.

I am looking to do some private lending where I would be receiving a 1099-INT from the borrower on interest paid.  

My understanding is that this would be earned income, and would not be offset by the K1 losses, but I'm getting some conflicting info on that.

I'm going to talk to my CPA, of course, but just wanted to and prepare a little bit for that conversation ahead of time.  

Any information on this would be greatly appreciated.  Thanks!

Interest usually is portfolio income. It is different from both earned income and passive income. It is taxed at the ordinary rates (like earned income), does not have self-employment tax (like passive income) and cannot offset passive losses from syndications.

When you engage in private lending, it is possible that the interest you earn can be classified and structured differently and thus allow passive losses offset. This is an advanced and controversial topic and is subject to your CPA's understanding and interpretation of the law.