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Passive income is income resulting from cash flow obtained on a regular basis, requiring minimal to no attempt by the recipient to maintain it.

The U.S. Internal Revenue Service categorizes income into three broad types, active income, passive income, and portfolio income.1 It defines passive income as only coming from two resources: rental action or"trade or business activities in which you do not materially participate. "23 Other financial and government institutions also recognize it as an income obtained as a result of capital growth or in relation to negative gearing.

Passive income differs from earned income and portfolio income in a variety of ways. Passive income is generally defined as a flow of income earned with little effort, and it is referred to as progressive passive income when there is not much effort needed in the individual receiving the passive income in order to increase the stream of income.

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Passive income differs from active income that's defined as any earned income including all the taxable income and wages the earner gain from working. Linear passive income refers to one constantly needed to remain active to maintain the flow of income, and once an individual chooses to stop working the income will probably also cease, examples of active income include salary, self-employment income, substance participation in an s corp, or a partnership.4 portfolio income is derived from investments and includes capital gains, interest, dividends, and royalties.5.

Any kind of cash flow property income which includes profits from ownership of funds, rent from ownership of assets such as Rental income and incoming cash flow from home or any bit of real estate, and interest in owning financial assets.6

Royalties are payments made by one company (the licensee) to another company or person (the licensor) in exchange for the right to use intellectual property (book, music, video) owned by the licensor.

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Forms of limited partnerships may be considered passive as long as the limited partner does not have any function in the company and they exchange their capital investment in return for a share of their activities profit.

In order to be considered a rental activity, tangible property is used by customers and the income paid from the action comes in the amount paid for the use of the property and is not considered a rental if:

"Earned visit this web-site Income vs Passive Income vs Portfolio Income: A Comparison - Only Ask Ben Why". Only Ask Ben Why. 2015-06-22. Retrieved 2018-05-12.

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a b "Publication 925 (2017), Passive Activity and At-Risk Rules Internal Revenue Service". www.irs.gov. Retrieved 2018-05-12.

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