Portfolio income is generally passive investment income generated from stocks, bonds, real estate, exchange-traded funds (ETFs), and other investments.
Portfolio income includes some of the following:
- Dividends
- Interest
- Capital Gains and Capital Losses
- Royalty Income (not derived in the course of a trade or business)
- Annuities
- Rents from Real Property
Example of Portfolio Income
John Smith has a brokerage account and purchased $25,000 of stock in Company A. Company A paid a dividend to John of $250. Later in the year, John sold the stock for $25,750, resulting in a $750 short-term capital gain. John’s total portfolio income is $1,000, which consists of dividends and short-term capital gain.
For U.S. federal tax purposes, income is generally categorized as either nonpassive, passive, or portfolio income. For more information on the tax attributes of portfolio income, view IRS Publication 550 (Investment Income and Expenses).