What type of income is derived from rental properties held as dealer property?

The income generated from rental properties that are classified as dealer property is considered active income. This classification arises because properties held for sale to customers in the ordinary course of business—known as dealer property—indicate that the taxpayer is engaged in a trade or business involving real estate.

When a taxpayer operates as a dealer, the income from leasing these properties is directly connected to their business activities. This differentiates it from passive income, which typically arises from investments where the investor does not materially participate in the business operations, and from portfolio income, which comes from investments in stocks, bonds, and other financial instruments.

Since the rental income from dealer properties comes from an activity in which the taxpayer is actively involved—buying, leasing, and selling—they classify this income as active, subject to self-employment taxes if applicable, and reported differently for tax purposes compared to purely passive or portfolio income sources.