Intuit Academy Tax Practice Exam 2025 – All-in-One Guide for Exam Mastery!

Passive income is characterized by earnings that come from activities in which the individual does not actively participate. This includes income from rental properties, where the owner rents out the property but does not necessarily engage in management or day-to-day operations, as well as earnings from business partnerships where the individual is not actively involved in running the business.

This definition encompasses the concept that passive income typically requires little to no effort on the part of the recipient once the initial investment or involvement is made. For example, if someone owns a rental property, they may earn passive income from the rent collected without having to manage the property actively on a daily basis.

In contrast, the other options refer to earnings generated from direct involvement in a business or employment, which do not fall under the umbrella of passive income. Therefore, the correct definition of passive income accurately captures the essence of earnings derived from activities where there is minimal or no active participation.