What defines "passive income"?

The definition of "passive income" is primarily characterized by income generated from activities in which the individual does not materially participate. This concept is particularly relevant in tax law, where different types of income are treated differently for tax purposes.

Passive income typically includes earnings from rental properties, limited partnerships, and other business investments where the owner is not involved in the day-to-day operations. Therefore, the choice identifying passive income as "income earned from business activities with no active participation" accurately encapsulates this definition.

In contrast, income from investments with active participation, employment wages, or financial instruments managed actively does not fall under the passive income classification. These forms of income involve some level of direct involvement or management from the earner, which differentiates them from passive income streams.