What best defines passive income?

Passive income is best defined as income not tied to active labor. This type of income typically requires little to no effort to maintain and often flows in from investments or assets already in place. For instance, rental income from property, dividends from stocks, or earnings from a business where someone is not actively involved all exemplify passive income.

The concept centers around the idea that individuals can earn money without actively working for each dollar earned, allowing for financial freedom and potentially the ability to pursue other interests or endeavors. This definition highlights the distinction between income generated from work versus income derived from existing assets that continue to produce monetary returns over time.

In contrast, other options emphasize active engagement or specific sources of income that do not encompass the broader definition of passive income. For example, income earned through active labor requires continuous effort and involvement, whereas passive income allows individuals to benefit from prior investments without ongoing contribution.