Final answer:
Agency-backed securities are typically taxed at the ordinary income tax rate, similar to asset-backed securities. However, the tax treatment of mortgage-backed securities may vary depending on whether they are issued by a government-sponsored enterprise.
Step-by-step explanation:
Agency-backed securities are typically taxed at the ordinary income tax rate. This means that the interest income from these securities is subject to the same tax rates as regular income, such as wages or salaries. The tax treatment of agency-backed securities is different from that of asset-backed and mortgage-backed securities.
Asset-backed securities, such as those backed by auto loans or credit card debt, are typically taxed at the ordinary income tax rate as well. However, the interest income from these securities may also be subject to an additional 3.8% Medicare tax for high-income individuals.
Mortgage-backed securities, which are backed by pools of mortgage loans, are subject to different tax treatment. The interest income from these securities is generally taxed at the same rate as agency-backed and asset-backed securities. However, if the mortgage-backed securities are issued by a government-sponsored enterprise, such as Fannie Mae or Freddie Mac, the interest income may be exempt from state and local taxes.