What is Passive income?
"Earnings derived from a rental property, limited partnership or other enterprises in which a person is not actively involved" - Investopedia
"Passive income is money you earn without actively working for it - as opposed to earned income from a job." - Lauren Perez CEPF
Tax implications for passive income: In the Unites States, the IRS divides income into three categories: active income, passive income, and portfolio income. - en.wikipedia.org.
According to IRS, there are two kinds of passive activities.
Rental activities, one may even materially participate in them unless he is a real estate professional.
Trade or business activities in which one does not materially participate during the year.
Portfolio income (interest, dividends, royalties, gains on stocks and bonds) is considered passive income by some analysts. However, the IRS for taxing purposes does not generally consider portfolio income as passive.