What is a nonpassive activity?

In simple terms, a nonpassive activity is a business activity where you had significant involvement in the business and actively earned the income (rather than passively earning it). The IRS has specific rules to determine if you have significant involvement, and they refer to it as material participation.

If you materially participate in a business activity as defined by the IRS, then it's considered nonpassive.

Note that rental activities are only nonpassive for real estate professionals or if you qualify for recharacterization.