What type of income is considered passive income?

Passive income refers to earnings derived from activities in which the taxpayer does not actively participate on a regular basis. This type of income usually comes from rental properties, limited partnerships, or other forms of business where the individual is not involved in the day-to-day operations.

In the context of rental property, this can mean that the landlord receives money from tenants without being involved in the management or maintenance of the property. For active participation, one would have to be substantially involved in managing the activity or making decisions related to it.

The other types of income listed do not qualify as passive. Income from investments in stocks and bonds typically is characterized as portfolio income, while income from full-time employment and freelance work are considered active income due to the substantial involvement required from the taxpayer in generating that income. Thus, option B correctly identifies passive income as that derived from rental property or similar business activities without material participation from the taxpayer.