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Simple English definitions for legal terms
passive investment income
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A quick definition of passive investment income:
Passive investment income refers to money earned from investments that require little to no effort or active involvement from the investor. This can include income from rental properties, dividends from stocks, or interest from savings accounts. On the other hand, passive loss refers to losses incurred from passive investments, which cannot be used to offset other types of income.
A more thorough explanation:
Passive investment income is money earned from investments that require little to no effort or active involvement from the investor. This type of income is typically generated from investments such as rental properties, stocks, bonds, and mutual funds.
- Rental income from a property that is managed by a property management company
- Dividend income from stocks held in a portfolio
- Interest income from bonds or savings accounts
- Capital gains from the sale of a mutual fund
These examples illustrate how an investor can earn money without actively working for it. For instance, rental income is generated from a property that is managed by a property management company, which means the investor does not have to be involved in the day-to-day operations of the property. Similarly, dividend income is earned from stocks held in a portfolio, which requires little to no effort from the investor once the stocks have been purchased.