Interest income is investment income, not passive.
Edit - the interest is portfolio income.
My Rental Property is an investment and it's considered passive. Confused
Might be good to do a little reading on this vs trying to explain - read this article.
No. Passive losses are only offset by passive income, not income from stocks, bonds, interest and dividends. There are limited partnerships that might pass passive income through a K-1.
According to the IRS:
Please see this link for more information: LINK
I hear what your saying and up until now I have followed that guidance. My confusion now stems from the below comments I read in another publication.
Portfolio income is considered passive income by some analysts, so dividends and interest would be considered passive.
As with active income, passive income is usually taxable. Portfolio income is considered passive income by some analysts, so dividends and interest would therefore be considered passive.
The reason, basically, that the IRS says "no".
Generally, you can use losses from passive activities only to offset income from passive activities. You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts.
The only time this is considered passive income is for the Foreign Tax Credit, which is completely different definition of what passive income is. If you have foreign interest and dividends, it will be considered passive when computing that credit.
According to this link from IRS.gov, interest and dividends is passive category income. Real Estate activities are Passive Activity Income, which is Income in which the taxpayer does not materially participate or, subject to certain exceptions, a rental activity. For IRS purposes, they regard the two incomes as separate events and won't one to offset the other.