Passive income refers to earnings generated from an activity in which the recipient does not materially participate on a regular, continuous, and substantial basis, a category that includes most distributions received by limited partners in real estate syndications and funds. This distinguishes passive income from active income like wages or income from a business the investor personally operates, and the distinction matters considerably at tax time because of the passive activity loss rules governing which losses can offset which type of income.
For accredited investors building a portfolio of syndicated real estate, passive income is often the primary appeal: capital is deployed into a deal managed entirely by a sponsor, freeing the investor from landlord duties while still receiving a share of cash flow and appreciation. The tax character of that income, and how efficiently it can be offset by depreciation or other deductions, is a core piece of real estate tax efficiency planning for investors holding multiple passive positions.
Further reading: Tax Efficient Real Estate Investing
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