Passive Income: What Does It Mean?

Passive income is money earned on a recurring basis that requires little to no active effort to maintain once the initial work or investment is in place. Common sources include rental income from investment properties, dividends from stocks, interest from bonds or savings accounts, royalties from intellectual property, and income from businesses you don't actively manage. The IRS defines passive income more narrowly for tax purposes — true passive income in the tax sense generally refers to rental activities or business income where you don't materially participate.