What Is Investment Income?

Investment income is money received in interest payments, dividends, capital gains realized with the sale of stock or other assets, and any profit made through another investment type. Investment income also includes interest earned on bank accounts, 澳洲幸运5官方开奖结果体彩网:dividends received from stock owned by mutual fund holdings, and the profits on the sale of gold coins. Long-term investment income undergoes different—and often preferential—澳洲幸运5官方开奖结果体彩网:tax treatment, which varies by country and locality.

Understanding Investment Income

Investment income refers solely to the financial gains above the original cost of the investment. The form the income takes, such as interest or dividend payments, is irrelevant to it being considered investment income sඣo long as the income♎ stems from a previous installment.

People generally earn most of their 澳洲幸运5官方开奖结果体彩网:net income each year through regular 澳洲幸运5官方开奖结果体彩网:employment income. However, disciplined saving and investment in the financial markets can grow moderate savings into large investment portfolios, yielding an investor a sizeable annual income over time. This type of income can come from different investment vehicles, including savings accounts, 澳洲幸运5官方开奖结果体彩网:certificates of deposit (CDs), and bonds.

Businesses often have income from investments. On the income statements of 澳洲幸运5官方开奖结果体彩网:public companies, an item called investment income or losses is commonly listed. This is where the company reports the portion of its net income obtained through investments made with surplus cash instead of being earned in its usual line of business. For a business, this may include all of the above, as well as interest earned or lost on its bonds that have been issued, share buybacks, corporate spinoffᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚs, and acquisitions.

Types of Investment Income

The interest accrued on a basic savings account is considered investment income. It is earned on top of the original investments—the deposits placed into the account—which can make the acc🎶ount a source🍌 of income.

Options, stocks, and bonds can also generate investment income. Whether through regular interest or dividend payments or by selling a security at a higher price than was paid. Any amoღunt received above the original cost of the investment qualifies as♎ investment income.

澳洲幸运5官方开奖结果体彩网:Real estate transactions can also be investment income. Some investors purchase real estate to generate investment income—either from the 澳洲幸运5官方开奖结果体彩网:cash flows generated from rents or any capital gains realized when selling the property. Once the original property cost is repaid, the income qualifies as investment income provided rent payments rec♚eived are not used to cover othe♏r property-related expenses.

Taxation of Investment Income

Most (but not all) investment income is subject to preferential tax treatment when the income is realized. The associated tax rate is based on how long an investment is held, its type, and an individual taxpayܫer's situation.

For example, retirement accounts such as a 401(k) or traditional individual retirement ജaccount (IRA)are subject to taxes once the funds are withdrawn. Certain tax-favorable investments, such as a Roth IRA, are not taxed on eligible gains associated with a qualified distribution. Meanwhile, long-term capital gains and 澳洲幸运5官方开奖结果体彩网:qualified dividend income are subject only to a 澳洲幸运5官方开奖结果体彩网:maximum federal tax of 20%, even if that amount exceeds a half-million dollars in a given year.

Compare that to the tax rates on 澳洲幸运5官方开奖结果体彩网:earned income, which range from 12% to 37%. For the 2024 tax year, the threshold for the top rate is above $609,350 ($626,350 for 2025) for individuals and $731,200 ($751,600 for 2025) for married couples filing jointly.

Investment income can also be used in conjunction with an individual's earnings to provide income tax credits. For example, one of the criteria used to evaluate individuals for the 澳洲幸运5官方开奖结果体彩网:Earned Income Tax Credit (EITC) is earning from running a small business and not having investment income over $11,600 for 2024 and $11,950 in 2025.

Example of Investment Income

Suppose an investor buys stock in company ABC for $50. Two weeks later, the investor sells them for $70, netting a profit of $20. This is a 澳洲幸运5官方开奖结果体彩网:short-term investment, so the gain is taxed at the investor's regular earned income tax rate (federal tax law defines a short-term investment as one owned for less than a year).

Suppose the same individual invests $500,000 in real estate property. The investor sells the property for $1.5 million 10 years later. The investment is categorized as long-term investment income and taxed at the long-term capital gains tax.

The tax percentage depends on the overall income of the taxpayer. Here's how long-term capital gain brackets work.

The Bottom Line

Any money you derive from your investments is considered investment income. This includes interest earned from savings accounts, dividends, capital gains you realize after selling an asset, and then sales of mutual funds to name just a few. If you have investment income, it's important to understand its tax treatment, which is different income you earn from an employer. Follow the tips listed above or catch up on Investopedia's 澳洲幸运5官方开奖结果体彩网:Guide to Income Tax for more information. If 𝔍you're still unsure, speak to a financial or tax expe♊rt.