Legal Definitions - passive income

Passive income is money earned from a business, rental property, or other income-producing activity that the earner does not directly participate in or have immediate control over. It is different from active income, which is earned from one's own labor or active participation in a trade or business.

Examples of passive income include:

• Rental income from a property that is managed by a property management company
• Dividend income from stocks or mutual funds
• Interest income from savings accounts or bonds
• Income from a business in which the earner is not actively involved, such as a silent partnership

These examples illustrate how passive income is earned without the earner having to actively work for it. Instead, the income is generated through investments or other income-producing activities that require little to no effort on the earner's part.