Question

Which of the following is an example of passive income? (1) portfolio income, including interest, dividends, annuities, and royalties (2) income from rental real estate earned by a no real estate professional (3) winnings from gambling (4) state and local refunds
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Answer 1

The examples of passive income are-

• portfolio income, including interest, dividends, annuities, and royalties
• income from rental real estate earned by a no real estate professional
• state and local refunds

Explanation:

Passive income is the incomes generated without the active participation of the person. In general, passive involves an upfront investment in the beginning after which a regular income source is generated. This constitutes mostly subsidiary activities. E.g. income generated from the rental properties, dividends, royalties and portfolio investment is considered to be passive in sense.

In the above examples-

• Interest, dividends, annuities, and royalties- It is a source of passive income since direct involvement of person is not required and involves initial investment in buying of stocks beyond which person enjoys annuities and dividends.
• Income from rental real estate earned by a no real estate professional- This is also an example of passive income. Once the investment is done, personal presence is not required for income generation. Hence it qualifies for passive income.
• winnings from gambling- it is not a source of passive income. A person presence is utmost (then only he can involve in gambling activities) for revenue generation.
• state and local refunds- This is a passive income since refunds are done by the concerned bodies and personal involvement is not needed.