What are {term}? Earning Assets

Earning assets are income-producing investments that are owned, or held, by a business, institution or individual. These assets also have a base value and the ability to produce additional funds beyond this inherent value for the investment holder. This allows the investment holder to maintain the assets as a source of earnings or sell the assets for a lump sum based on the inherent value.

BREAKING DOWN Earning Assets

Earning assets include stocks, bonds, income from rental property, certificates of deposit (CDs) and other interest or dividend earning accounts or instruments. They can provide a steady income, which makes particularly useful for long-term goals such as retirement planning. Earning assets are a reflection of only part of the total assets of an individual or institution.

Maintenance on Earning Assets

Some earning assets, such as certificates of deposit, require no additional effort once the initial investment is made. Income is produced through interest or dividend payments and is a part of the essential design of the particular investment type. These investments require little to no maintenance and typically do not require any additional investment on the part of the investment holder.

Other earning assets, such as rental properties, require ongoing effort in terms of time and money. For example, rental property requires routine maintenance, property improvements, taxes, insurance and general management of the property. Some of these efforts can be effectively outsourced for a fee to a third party such as a property management firm.

Property management firms assume responsibility for the day-to-day operations associated with a rental property. This can include locating and screening potential tenants, managing any and all maintenance, collecting of rent payments, and advertising the property. The firm’s fees are typically paid through a portion of the rental income received. In cases where a property is vacant, management fees may be required directly from the owner.

Earning Assets and Tax Obligation

Income from earning assets must be reported in the appropriate tax filings. In the case of income generated by various securities, the investing institutions send yearly statements for tax reporting purposes that include the total amount of interest and/or dividends earned. Income from rental properties must also be declared.

Certain costs related to the maintenance of assets, such as rental properties, may qualify as tax deductions. This can include some routine costs, such as utilities and taxes, as well as certain variable costs, such as costs related to repairs made on the property.