What is passive income?
- Definition
- Passive income is income earned from sources that do not require the recipient's continuous active involvement.
Once the underlying asset is acquired or created, it generates returns independently of ongoing labor. Rental income from a property, dividends from stock holdings, royalties from a book or song, and interest from loans or bonds are all common examples.
The tax treatment of passive income differs from active income under IRS rules. Passive losses generally can only offset passive income, not wages or other active earnings. Passive income is often contrasted with active income (earned through direct work) and is closely related to recurring income.
