Passive Income

AAA

DEFINITION of 'Passive Income'

Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service (IRS).

INVESTOPEDIA EXPLAINS 'Passive Income'

There are three main categories of income: active income, passive income and portfolio income. Passive income does not include earnings from wages or active business participation, nor does it include income from dividends, interest or capital gains. For tax purposes, it is important to note that losses in passive income generally cannot offset active or portfolio income.

It is important to note that, by some, portfolio income is considered passive income; in which case dividends and interest would be considered passive. The important definition is the one the IRS uses, and to be sure your taxes are filed correctly, it would be prudent to check with the IRS or a tax professional on this matter if you have a blend of active, passive, and portfolio income.

RELATED TERMS
  1. Suspended Loss

    A capital loss that cannot be realized in a given tax year due ...
  2. Limited Partnership - LP

    Two or more partners united to conduct a business jointly, and ...
  3. Active Income

    Income for which services have been performed. This includes ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Passive Loss

    A financial loss within an investment in any trade or business ...
  6. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Options & Futures

    Increase Your Disposable Income

    Here are four quick and easy ways to up your spending money.
  3. Taxes

    Get A Tax Credit For Your Foreign Investments

    The foreign tax credit provides a break on investment income made and taxed in a foreign country.
  4. Options & Futures

    Choosing The Best Disability Insurance

    Social Security benefits can be hard to collect. Find out why you need disability insurance to protect your income, and learn how to choose the right policy for you.
  5. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  6. Taxes

    Tax Deductions For Rental Property Owners

    Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits.
  7. Options & Futures

    3 Simple Steps To Building Wealth

    Getting richer is easier if you take it one step at a time.
  8. Professionals

    Porter's Five Forces

    Porter’s Five Forces is an analysis scheme created by Harvard Business School professor Michael E. Porter. Using this analysis tool, business managers can gauge the level of competition within ...
  9. Investing Basics

    What is the difference between an IPO and a seasoned issue?

    Learn how companies issue IPO securities when they first go public and seasoned issue shares if they sell more shares in the secondary market.
  10. Investing Basics

    What are some high profile cases of companies who failed to be socially responsible?

    Learn about corporate social responsibility. Explore how Enron's lack of corporate responsibility ultimately destroyed the company and ruined many lives.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center