passive income

Income from activities, in which an investor is not actively involved. It is a distinction, established by the Internal Revenue Service that governs how the income is taxed. Real estate investments used to be considered passive, but now if the taxpayer spends half his or her time involved in real estate property or services, then income from the real estate is not considered passive. In 1993, the IRS rules were changed to require that losses and credits from passive activities are deductible only from passive income.