Passive income is money earned with minimal ongoing effort — dividends from stocks, interest from bonds and savings, rental income from real estate (with property management), royalties from books or software, and income from businesses you don't actively run. The IRS has a strict definition for tax purposes (passive activity loss rules under Section 469), which mostly applies to real estate and limited partnerships. Truly passive income takes substantial upfront work or capital to set up: writing a book takes a year; buying a rental requires a down payment. The promise of 'passive income while you sleep' often understates the work required to build the underlying asset.
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Passive Income
August 22, 2026 · Aditya Gupta
Personal Finance
Related terms
1099 Form
Form 1099 is a family of IRS forms reporting various types of non-W-2 income. 1099-NEC reports nonemployee compensation…
529 Plan
A 529 plan is a tax-advantaged education savings account. Contributions grow tax-free; withdrawals for qualified education expenses (tuition,…
ABLE Account
Achieving a Better Life Experience (ABLE) accounts are tax-advantaged savings accounts for individuals with disabilities (onset before age…
AGI
Adjusted Gross Income (AGI) is your total gross income minus specific 'above-the-line' adjustments — traditional IRA contributions, student…
APR
Annual Percentage Rate (APR) is the yearly cost of borrowing money expressed as a percentage of the loan…
APY
Annual Percentage Yield (APY) is the effective annual rate of return on a savings or investment product, accounting…
