2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1005 - Computation of Taxable Income (§§ 30101 — 30157) › Subchapter A - Determination of Net Income, General Concepts (§§ 30101 — 30105) › § 30101 - Gross income

(a) General definition.— Except as otherwise provided in this Code, the term “gross income” means any income, gain, or profit from whatever source derived or earned. Gross income includes, but is not limited to, the following types of sources:
(1) Gains, profits, and income derived from salaries, wages, or compensation for personal services (including the compensation received for services rendered as an official or employee of the Government of Puerto Rico, of any state of the Union, the United States, or any political subdivision thereof, or of any agency or instrumentality of any of the abovementioned entities) of any sort and in whichever manner they are paid.
(2) Gains, profits, and income from professions, occupations, trades, businesses, commerce, or sales, or of deals in property whether real or personal that arise from the ownership or use, or the interest in such property:
(A) In the case of gains or income derived from the production or sale of property in the ordinary course of the business, whether real or personal, the gross income under this section shall be the gross gain from the sale of such products as determined under generally accepted accounting principles. For purposes of this paragraph, gross income means the total amount generated from the sale of goods or products minus the cost of the sold goods or products.
(B) When, in the judgment of the Secretary, the use of inventory is necessary to clearly determine the income of any taxpayer, the latter shall be required to make inventories on the basis provided by the Secretary, pursuant to accounting principles generally applicable to the trade or business that show the income more clearly. The taxpayer may use the merchandise inventory method provided in § 30146 of this title, whether or not it has been provided under the preceding paragraph, subject to the requirements established in § 30146 of this title.
(3) Gains, profits, and income derived from the sale or other disposal of any type of property that does not constitute inventory held by the taxpayer.— In the case of the sale or other disposal of property, the gain or loss shall be computed as provided in § 30143 of this title.
(4) Gains, profits, and income derived from pensions, annuities (including life insurance, annuity or endowment contracts) estates and trusts. For purposes of this clause, the amounts accumulated on which the five percent (5%) special tax was prepaid as provided in Section 1012D of the Puerto Rico Internal Revenue Code of 1994, as amended, shall be treated as amounts contributed by the participant on which tax was prepaid by him/her.
(5) Pensions by reason of divorce or separation, subject to the provisions of § 30112 of this title.
(6) Profits derived from the cancellation of indebtedness, except as provided in subsection (b)(10) of this section.
(7) Distributions made by corporations, subject to the provisions of § 30149 of this title.
(8) Gains, profits, and income derived from interest, rents, royalties, dividends, or interest in partnerships, profits from corporations of individuals, profits from limited liability corporations, securities, or the operation of any business conducted for profit or earnings.
(9) Gains or profits and income derived from any source.
(b) Exclusions from gross income.— The following items shall be excluded from the definition of gross income:
(1) Life insurance.— There shall be excluded from gross income:
(A) Amounts received under a life insurance contract paid by reason of the death of the insured, whether in a lump sum or in installments, but if such amounts were withheld by the insurer under an agreement to pay interest thereon, the interest payments shall be included in the gross income; and any amount received, upon authorization by the Secretary of the Treasury, under a life insurance contract on the life of an insured who has a terminal illness, and as certified by a competent medical authority shall result in death in one year or less.
(B) Life insurance from international insurers.— Amounts received by a nonresident individual or a foreign partnership or corporation not engaged in trade or business in Puerto Rico as benefits or interests of any kind in connection with a life insurance contract issued by an international insurer.
(2) Gifts, bequests, devises, and inheritances.— The value of the property acquired by gift, bequest, devise, or inheritance shall be excluded from gross income. The income derived from such property shall not be excluded from gross income under this paragraph or, in case the gift, bequest, devise, or inheritance consists of income derived from such property, the amount of such income. For purpose of this clause, if under the terms of the gift, bequest, devise, or inheritance, payment, crediting, or distribution thereof is to be made at intervals, to the extent that it is paid or credited or to be distributed out of income derived from property, it shall be treated as a gift, bequest, devise, or inheritance of income derived from property.
(3) Compensation for injury or sickness.— Except in the case of amounts attributable to, but not in excess of, deductions allowed under § 30135(a)(2)(F) of this title in any prior taxable year, amounts received as sickness or accident insurance or under workmen’s compensation acts, as compensation for personal physical injuries or sickness (except the amount received by an employee, up to the amount that said amounts are directly paid by the employer), plus the amount of any indemnification received in a legal action or a settlement out of court for such personal physical injuries or physical sickness, and amounts received as a pension, annuity or similar allowance for personal physical injury or physical sickness, and for occupational or non-occupational disability, including those resulting from active service in the armed forces of any country.
(4) Death benefits received by heirs or beneficiaries of members of certain retirement or pension systems.— Amounts received by the heirs or beneficiaries of the members of the retirement system of the employees of the Government of Puerto Rico and its instrumentalities, of the system of pensions and annuities for teachers of Puerto Rico, of the retirement system of the University of Puerto Rico, of the retirement system of the employees of the Puerto Rico Electric Power Authority, or of any other system created in the future, as well as of any retirement system of the federal or state government or instrumentalities or political subdivisions thereof, as a death benefit of the participant or member of any of said systems.
(5) Scholarships.— The amounts received from the Government of Puerto Rico or its agencies, instrumentalities or political subdivisions as scholarships for studies when the beneficiary is other than a public official or employee, or when said amounts do not represent the compensation or part of the compensation of an office or job or are not related to such office or job.
(6) Literary, journalistic, scientific, and artistic awards, and awards for industrial, agricultural or professional development.— Income derived from literary, journalistic, scientific, and artistic awards, and awards for the promotion of industrial, agricultural or professional progress, obtained in competitions or contests to promote and encourage literature, the arts, journalism, agriculture, industry, the professions, and the sciences.
(7) Federal social security for old-age and survivors.— Payments for benefits received under the provisions of Section 202 of Title II of the Social Security Act, as heretofore or hereafter amended.
(8) Crop insurance.— The amounts received under any crop insurance, excluding fire insurance, as a result of losses suffered by the insured.
(9) Foster care maintenance payments.— The amount received by foster homes as monthly maintenance under the Families with Children Service Program of the Administration for Children and Families.
(10) Income from the cancellation of indebtedness.—
(A) Exclusion.— The income derived from the cancellation discharge of indebtedness shall not be subject to income taxes under this part, in whole or in part, if such cancellation of indebtedness is due to any of the following cases:
(i) The cancellation occurs as a result of filing for bankruptcy in an action under the provisions of Title 11 of the United States Code and such cancellation is approved by a court with jurisdiction.
(ii) The cancellation occurs when the taxpayer is insolvent, in which case the amount excluded by virtue of this paragraph shall not exceed the amount by which the taxpayer is insolvent. For purposes of this paragraph:
(I) The term “insolvent” means the excess of liabilities over the fair market value of assets, and
(II) the taxpayer’s insolvency shall be determined on the basis of the taxpayer’s assets and liabilities immediately before the cancellation.
(iii) The cancelled indebtedness is a student loan and the cancellation is made pursuant to a provision of said loan that allows for such cancellation, in whole or in part, if the taxpayer worked for a certain amount of time in certain professions or for certain employers (other than the lender).
(iv) The tax basis of any other asset in the hands of the taxpayer, under the rules prescribed by the Secretary through regulations, administrative determination, circular letter, or general bulletin.
(B) Reduction of tax attributes.— The amount excluded under this paragraph shall be applied to reduce the tax attributes of the taxpayer in the following order:
(i) The net operating loss incurred for the taxable year of the cancellation, and any net operating loss carryover to such taxable year and available for the taxable year in which the cancellation occurred.
(ii) The net capital loss for the taxable year of the cancellation, and any net capital loss carryover to such taxable year and available for the taxable year in which the cancellation occurred.
(iii) The tax basis of any asset held by the taxpayer used as collateral of the debt subject to the cancellation.
(iv) The tax basis of any other asset in the hands of the taxpayer, under the rules prescribed by the Secretary through regulations, administrative determination, circular letter, or general bulletin.
(11) Annuities.— Except as otherwise provided in § 30102(a)(1) of this title, the following amounts with respect to annuities shall be excluded from gross income:
(A) In general.—
(i) Amounts received, other than amounts paid due to the death of the insured and payment of interest in such amounts other than those received as annuities under a life insurance or endowment contract, but if such amounts, when added to amounts received before the taxable year under such contract, exceed the aggregate amount of premiums or consideration paid, whether or not paid during the taxable year, then the excess shall be included in gross income.
(ii) Amounts received as an annuity under an annuity or endowment contract shall be included in gross income, except that there shall be excluded from gross income the excess of the amount received in the taxable year over an amount equal to three percent (3%) of the aggregate amount of the premiums or consideration paid for such annuity, whether or not paid during such year, until the aggregate amount excluded from gross income under this part or prior income tax laws with respect to such annuity equals the aggregate premiums or consideration paid for such annuity. For purposes of this clause, the amounts accumulated on which the five percent (5%) special tax was prepaid as provided in Section 1012D of the Puerto Rico Internal Revenue Code of 1994, as amended, shall be treated as premiums or considerations paid by the participant.
(iii) In the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance endowment or annuity contract, or any interest therein, only the actual value of such consideration plus the amount of the premiums and other amounts subsequently paid by the transferee shall be exempt from taxation under § 30101(b)(1) of this title or this clause.
(iv) Subparagraph (iii) of this paragraph shall not apply in case of a transfer if said contract or interest therein is the basis for determining gain or loss in the hands of a transferee determined, in whole or in part, by reference to such basis of such contract or interest therein in the hands of the transferor.
(v) This paragraph and clause (1) of this subsection shall not apply to that portion of a payment under a life insurance, endowment, or annuity contract, or any interest therein, which is includible in gross income, under subsection (a)(5) of this section.
(12) Prizes from the Sales and Use Tax Oversight Plan.— The amounts or items, of any kind, received as prizes from drawings held as part of the Sales and Use Tax Oversight Program.
History —Jan. 31, 2011, No. 1, § 1031.01, retroactive to Jan. 1, 2011; June 20, 2011, No. 98, § 5; Dec. 10, 2011, No. 232, § 18; June 30, 2013, No. 40, § 16.