Passive income, measured: what $100,000 actually pays while you sleep
The phrase promises money for nothing. The arithmetic says $100,000 in a savings account, a bond fund, a dividend fund or a rental produces between $300 and $500 a month — before tax.
"Passive income" is sold as an idea — money arriving without work. It is better understood as a rate: the yield on capital. Once it is a rate, the question "how much passive income can I have?" becomes "how much capital do I have, and what does capital pay?", and both halves of that have answers.
What capital pays
The four ordinary sources. The yields are not quoted here because they change daily and a number on this page would be stale within a week; each row says where the current figure is published. The monthly column uses assumed yields, stated, so the scale is visible.
| Source | Assumed yield | Monthly on $100,000 | Taxed as | Current rate published by |
|---|---|---|---|---|
| High-yield savings account | 4% | $333 | Ordinary income, federal and state | The bank; FDIC national averages |
| Treasury bills | 4% | $333 | Ordinary income, federal only | TreasuryDirect auction results |
| Broad dividend fund | 3% | $250 | Mostly qualified dividends, at capital gains rates | The fund's own fact sheet |
| Rental property, net of costs | 5% | $417 | Ordinary income, less depreciation | Nobody — it is the owner's own arithmetic |
$4,000 a month is $48,000 a year. At a 4% yield that requires $1,200,000 of capital. At 3% it is $1,600,000. The arithmetic is division, and it is why passive income is the result of wealth rather than a route to it.
The word "passive" and the tax code
The IRS uses the word narrowly. Rental income and income from a business the owner does not materially participate in are passive activities; interest and dividends are portfolio income. The distinction matters because passive losses can only offset passive income, with an allowance of up to $25,000 of rental losses against ordinary income for active landlords under an income threshold. "Passive income" as sold online is mostly portfolio income in the code's terms.
Where the money actually comes from
- Interest is a bank or the Treasury paying to use the money. It is the simplest, the most liquid and the most heavily taxed.
- Dividends are a share of company profits. A fund yielding 3% is paying out roughly what its companies chose to distribute; the rest of the return, if any, is in the price. The lesson on dividends covers why a high yield is sometimes a warning.
- Rent is a tenant paying for shelter. Gross yields look high; net yields, after tax, insurance, maintenance, vacancy and management, are the figure above — and the work is not zero.
- Royalties, licensing, a product that sells without the maker present. Real, and rare. The capital here is the time invested up front, which is why these are side businesses and not investments.
The Treasury's rate is what money earns with no credit risk. A yield far above it is compensation for something — credit risk, illiquidity, leverage, or a promoter. The lesson on spotting investment scams is about the last one.
Sources
- Publication 925, Passive Activity and At-Risk RulesInternal Revenue Service · checked Sep 24, 2026
- Treasury billsTreasuryDirect, U.S. Department of the Treasury · checked Sep 24, 2026
- Topic no. 404, DividendsInternal Revenue Service · checked Sep 24, 2026