a trade or business. (B) Passive assets treated as nonbusiness assets (i) In general For purposes of subparagraph (A), a passive asset shall be treated as a nonbusiness asset unless— (I) the asset is property described in paragraph (1) or (4) of section 1221(a) or is a hedge with respect to such property, or (II) the asset is real property used in the active conduct of 1 or more real property trades or businesses (within the meaning of section 469(c)(7)(C)) in which the transferor materially participates and with respect to which the transferor meets the requirements of section 469(c)(7)(B)(ii). (ii) Material participation For purposes of clause (i)(II), material participation shall be determined under the rules of section 469(h), except that section 469(h)(3) shall be applied without regard to the limitation to farming activity. (C) Working capital treated as used in trade or business Any asset (including a passive asset) which is held as a part of the reasonably required working capital needs of a trade or business shall be treated as used in the active conduct of a trade or business. (3) Passive asset For purposes of this subsection, the term passive asset means any— (A) cash or cash equivalents, (B) stock in a corporation or any other equity, profits, or capital interest in any entity, (C) evidence of indebtedness, option, forward or futures contract, notional principal contract, or derivative, (D) asset described in clause (iii), (iv), or (v) of section 351(e)(1)(B), (E) annuity, (F) real property used in 1 or more real property trades or businesses (as defined in section 469(c)(7)(C)), (G) asset (other than a patent, trademark, or copyright) which produces royalty income, (H) commodity, (I) collectible (within the meaning of section 408(m)), or (J) any other asset specified in regulations prescribed by the Secretary. (4) Look-thru rule (A) In general If a nonbusiness asset of an entity described in paragraph (1) consists of a 10-percent interest in any other entity, this subsection shall be applied by