The operating loss from a passive activity can not be used to offset portfolio income. Portfolio income is defined as money earned from investments, dividends, interest, and capital gains. It is one of the three major types of income. Other two are active and passive income. The majority of portfolio income is taxed favorably.
Dividends and capital gains pay a lower tax rate than earned income. Furthermore, portfolio income is exempt from Social Security and Medicare taxes. Active income is most straightforward of the three categories. It is money earned by working or providing a service, wages, salaries, and to reduce operating loss.
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