Definition
Income from investments like rental property that doesn't require active participation in generating income.
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Passive income includes rental income, which can be offset by passive losses (depreciation, expenses). Subject to passive activity limitations.
Pro Tip
Passive income can be sheltered using depreciation and losses; understand passive activity rules.
Example
Rental income of $18,000 from investment property, offset by $9,000 depreciation and $6,000 expenses.