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. Active Income

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

    1. An increase in the value of a capital asset (investment or ...
  4. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  5. Limited Partnership - LP

    Two or more partners united to conduct a business jointly, and ...
  6. Passive Loss

    A financial loss within an investment in any trade or business ...
Related Articles
  1. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  2. Increase Your Disposable Income
    Options & Futures

    Increase Your Disposable Income

  3. Get A Tax Credit For Your Foreign Investments
    Taxes

    Get A Tax Credit For Your Foreign Investments

  4. Choosing The Best Disability Insurance ...
    Options & Futures

    Choosing The Best Disability Insurance ...

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center