Passive income

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This article is about category used in accounting and taxation. For subset of unearned income based on property ownership, see property income. For related concepts, see unearned income.

Passive income is an income received on a regular basis, with little effort required to maintain it. It is closely related to the concept of "unearned income".

The American Internal Revenue Service categorizes income into three broad types, active (earned) income, passive (unearned) income, and portfolio income.[1] It defines passive income as only coming from two sources: rental activity or "trade or business activities in which you do not materially participate."[2][3] 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.


Some examples of passive income are:

The IRS has a specific definition of passive income that excludes some of the incomes listed above. Royalties for example, are, according to the Service guide, generally non-passive in nature. Additionally, interest, dividends, annuities, and gains from stocks and bonds, lottery winnings, salaries, wages, commissions, retirement income, guaranteed payments for services are considered by the IRS to be non-passive.[6][7]

See also[edit]


  1. ^
  2. ^,,id=146330,00.html
  3. ^ "Topic 425 - Passive Activities– Losses and Credits". Retrieved 2009-06-18. 
  4. ^ Ernest R.Larkins; "International applications of U.S. income tax law" John Wiley & Sons 2004 P.288
  5. ^ Clarence F. McCarthy, Billy M. Mann, William H. Gregory; "The Federal income tax: its sources and applications" Prentice-Hall, 1971 page 74
  6. ^,,id=146330,00.html
  7. ^

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