Passive Income Law and Legal Definition

Where a person continuously generates money from any source or investment that does not require a direct involvement, such person is said to acquire a passive income. For example, the income that a person receives from a full flourished, self functional business is passive income. Music, movie, television, book and screenplay royalties, patent royalties, rental income, click-through income, and online advertising revenue are some of the examples of passive income. Generally passive income is taxable. Some people describe passive income as residual income or portfolio income.

The American Internal Revenue Service defines passive income as income from trade or business activities in which you do not materially participate.