Passive Income


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).

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.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Passive income — is a rent received on a regular basis, with little effort required to maintain it. It is advocated by some authors, especially by Robert Kiyosaki.Some examples of passive income are: * Repeated regular income, earned by a sales person, generated… …   Wikipedia

  • passive income — Income (such as investment income) that does not come from active participation in a business. Specified by the U.S. tax code. Bloomberg Financial Dictionary …   Financial and business terms

  • passive income generator — ( PIG) An investment that favors passive income, such as an income oriented real estate limited partnership. Bloomberg Financial Dictionary …   Financial and business terms

  • passive — pas·sive / pa siv/ adj: not involving, deriving from, or requiring effort or active participation imposed a passive duty not to interfere; specif: of, relating to, or being business activity in which the investor does not have immediate control… …   Law dictionary

  • passive foreign investment company — (PFIC) USA A foreign corporation is a PFIC for any taxable year in which either at least: • 75% of its gross income is passive income (as defined in IRC § 1297(b)); or • 50%, on average and generally by value, of its assets (determined under …   Law dictionary

  • Passive foreign investment company — Within taxation law of the USA, a passive foreign investment company (or PFIC ) is a foreign company with predominantly investment income, or whose assets are primarily intended to generate investment income. The Internal Revenue Service handles… …   Wikipedia

  • passive — As used in law, this term means inactive; permissive; consisting in endurance or submission, rather than action; and in some connections it carries the implication of being subjected to a burden or charge. As to passive debt passive negligence… …   Black's law dictionary

  • Passive Activity Loss Rules — A set of rules that prohibits using passive losses to offset earned or ordinary income. Passive activity loss rules prevent investors from using losses incurred from income producing activities in which they are not materially involved. Being… …   Investment dictionary

  • Income trust — An income trust is an investment trust that holds income producing assets. The term also designates a legal entity, capital structure and ownership vehicle for certain assets or businesses. Its shares or trust units are traded on securities… …   Wikipedia

  • Passive Loss — A loss incurred through a rental property, limited partnership, or other enterprise in which the individual is not actively involved. Passive losses can only be used to offset passive income, not wage or portfolio income …   Investment dictionary


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.