Passive income is earned by someone from ventures in which they did not actively participate.Two common examples are limited partnership income and rental property income. A limited partner is someone whose role in a business is limited to their capital investment. Suppose Jane invests money in her friend’s bowling alley to help hire staff and maintain the equipment. Jane does nothing else to run the bowling alley, but receives a profit share every month. That’s limited partnership passive income. Suppose Jane also buys a house in the university town across the state. She hires a property management company to deal with the tenants and maintain the house. She receives rent every month even though she doesn’t personally oversee the house’s management. That’s rental property passive income. The Internal Revenue Service divides income into three categories: active, passive and portfolio. Portfolio income comes from investments, dividends, interest and capital gains. Note that in some cases, interest and dividend payments are considered passive. Check with the IRS or a tax professional when you complete your taxes. Other sources of passive income include royalty and pension payments. Passive income can help build savings and income, especially later in life.