Passive Investment Income Law and Legal Definition

Passive investment income refers to an investment income that does not require gross receipts from royalties, rental income, dividends, interests and gains from the sale or exchange of securities. Any interest or rental income from ventures is excluded from the definition of passive investments because they are received from actively and regularly engaged business operations.[ Crouch v. United States, 509 F. Supp. 727, 732 (D. Kan. 1981)]

The following are some examples of passive investment income:

1.Earnings from a business that does not require direct involvement from the owner or merchant;

2.Rent from property;

3.Royalties from publishing a book or from licensing a patent or other form of intellectual property; and

4.Earnings from internet advertisements on websites.