Which of the following is an example of passive income?

Passive income is generally defined as income derived from rental properties, limited partnerships, or other enterprises in which a person is not actively involved. In this context, the correct option identifies income generated from real estate ventures by someone who is not considered a real estate professional. This type of income qualifies as passive because the individual does not materially participate in the operations or management of the real estate activity, aligning with the IRS's definition of passive income.

The significance of passive income lies in its treatment for tax purposes, which can differ significantly from active income. Real estate income can be particularly beneficial for tax planning, as it can offer various deductions and strategies for wealth accumulation without active engagement in managing the property.

In contrast, the other options represent forms of income that do not align with the passive income classification. For instance, portfolio income denotes investment gains through interest and dividends, which while passive in nature, does not fall under the IRS definition of passive income for real estate purposes. Gambling winnings are usually considered earned income and subject to different tax regulations. Lastly, state and local refunds are not categorized as income but rather as a return of an overpayment, which is treated differently in tax filings.