What is 'Investment Income'

Investment income comes from interest payments, dividends, capital gains collected upon the sale of a security or other assets, and any other profit made through an investment vehicle of any kind. Generally, most people earn a large portion of their total net income through employment income. However, disciplined saving and investment in the financial markets can grow moderate savings into large investment portfolios, yielding an investor a large annual investment income.

BREAKING DOWN 'Investment Income'

In income statements of publicly traded companies, an item called investment income, or losses, is commonly listed. This is where the company reports the portion of the net income obtained through investments made with surplus cash as opposed to being earned with the company's usual line of business.

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 as long as the income is generated due to a previous investment. Additionally, investment income can be received as a lump sum or regular interest payments.

Investment Income Made Simple

In the simplest form, the interest accrued on a basic savings account is considered income. The interest is generated as an amount above and beyond the original investments, which are the deposits placed into the account, making it a source of income.

Options, stocks and bonds can also generate investment income. Whether this is through regular interest payments or selling a security at a higher rate than it was purchased, the funds above the original cost of the investment qualify as investment income.

Understanding Investment Properties

Some investors choose to purchase real estate as a way to generate investment income. Most commonly, this is accomplished through receipt of rent payments from an authorized tenant. Once the original cost of the property is repaid by the investor, and rent payments received are not used for the purpose of covering other property-related expenses, the income qualifies as investment income.

Investment Income and Taxes

While not always the case, the majority of investment income is subject to a level of taxation once the funds are withdrawn. The associated tax rate is based on the form of investment producing the income and other aspects of an individual taxpayer’s situation. Many retirement accounts, such as a 401(k) or traditional IRA, are subject to taxation 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.

RELATED TERMS
  1. Net Investment Income

    Income received from investment assets (before taxes) such as ...
  2. Income Investment Company

    A money management firm whose primary investment goal is to generate ...
  3. Income

    Money that an individual or business receives in exchange for ...
  4. Portfolio Income

    Income from investments, dividends, interest, royalties and capital ...
  5. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  6. Investing

    The act of committing money or capital to an endeavor with the ...
Related Articles
  1. Personal Finance

    All About Income

    Income is the money you or a business earns by providing goods or services, or through investments.
  2. Managing Wealth

    How Will Your Investment Make Money?

    Discover the basic types of investment income and which asset classes pay them.
  3. Financial Advisor

    3 Ways Retirees Can Generate Income From Investments

    Retirement can last a long time, which means people not only have to save for retirement but see it generate income. Thankfully there’s lots of ways to do that.
  4. Investing

    Satisfy Your Investment Objectives With Income Funds

    Discover the various categories of income funds and the types of investors for whom they are appropriate.
  5. Financial Advisor

    The Basics of Income Tax on Mutual Funds

    Learn about the basics of income tax on mutual funds, including what types of income may be subject to the capital gains tax rate.
  6. Investing

    Understanding the Income Statement

    The best way to analyze a company—and figure out if it's worth investing in—is to know how to dissect its income statement. Here's how to do it.
  7. Retirement

    Weave Your Own Retirement Safety Net

    Build savings to support yourself in case pension plans and Social Security fall through.
  8. Taxes

    Understanding How Dividends Are Taxed

    Learn how dividends are taxed by the IRS, and understand the different types of dividend income as well as the capital gains tax rates.
  9. Investing

    How Tax-Efficient Is Your Mutual Fund?

    Learn about factors that influence the tax-efficiency of your mutual fund, how income from your investment is taxed and what to look for when choosing a fund.
  10. Retirement

    The Best Way To Build Your Retirement Portfolio

    Retirement means changing your investment goals from growing assets to generating income. Here's how.
RELATED FAQS
  1. What is the difference between capital gains and investment income?

    Learn about the difference between capital gains and other types of investment income, such as dividends paid on stock or ... Read Answer >>
  2. What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual ... Read Answer >>
  3. What is the Difference Between Operating Income and Net Income?

    Understand the difference between operating income and net income, including the calculations and interpretations of each, ... Read Answer >>
  4. What is the difference between taxable income and gross income?

    Understand the basic differences between the terms gross income and taxable income, and what is included in the total of ... Read Answer >>
  5. What are the main advantages of fixed income securities?

    Learn why the addition of fixed income securities are common among investors who are attempting to limit their exposure to ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center