Passive income Passive income is income that requires little to no effort to earn and maintain. It is called progressive passive income when the earner expends little effort to grow the income. Examples of passive income include rental income and any business activities in which the earner does not materially participate. Some jurisdictions' taxing authorities, such as the Internal Revenue Service in the United States of America, distinguish passive income from other forms of income, such as earnings from regular or contractual employment, and may tax it differently.The United States Internal Revenue Service categorizes income as active income, passive income, or portfolio income. It defines passive income as only coming from two sources, or "passive activities": rental activity or "trade or business activities in which you do not materially participate." Other financial and government institutions also recognize it as an income obtained as a result of capital growth or in relation to negative gearing. Passive income is usually taxable. Active income is earned income including all taxable income and wages the earner receives for working. Active income includes wages, self-employment income, and material participation in an S corporation or partnership. Portfolio income is derived from investments such as dividends, interest, capital gains, and some royalties. Passive activitiesThere are three kinds of passive activities: Some limited partnerships may be considered passive as long as the limited partner does not have any role in the company and exchanges their capital investment for a share of the activities profit. Rental activitiesIn order to be considered a rental activity, tangible property is used by customers and the income paid from the activity comes from the amount paid for the use of the property and is not considered a rental if: The average period of customer use is:
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