Which income categorized is generally excluded from being ordinary income?

Capital gain income is generally excluded from being categorized as ordinary income because it is classified differently under tax law. When an individual sells an asset, such as stocks or real estate, for more than its purchase price, the profit made is termed a capital gain. This income is subject to capital gains tax rates, which are typically lower than ordinary income tax rates. As a result, capital gains are treated distinctively when it comes to taxation, reflecting the nature of the transaction as an investment rather than earned through regular employment or business operations.

In contrast, the other categories of income – salaries, rental income, and interest income – are considered ordinary income and taxed at the individual's ordinary income tax rates. Understanding this distinction is critical for tax planning and compliance, as it can significantly affect an individual's overall tax liability.