ExpertHard1 markMultiple Choice
CPA · Question 48 · Area IV: Individual Taxation
A taxpayer had the following in the current year: Wages $40,000; Net Short-Term Capital Gain $2,000; Net Long-Term Capital Gain $5,000. What is the taxpayer's total taxable capital gain included in Adjusted Gross Income?
A taxpayer had the following in the current year: Wages $40,000; Net Short-Term Capital Gain $2,000; Net Long-Term Capital Gain $5,000. What is the taxpayer's total taxable capital gain included in Adjusted Gross Income?
Answer options:
A.
$2,000
B.
$5,000
C.
$7,000
D.
$0
How to approach this question
Distinguish between 'Inclusion in AGI' (100%) and 'Tax Rate' (Preferential).
Full Answer
C.$7,000✓ Correct
All recognized capital gains (short-term and long-term) are included in gross income and AGI. The preferential tax rates for LTCG apply during the tax computation phase, but the full amount is part of AGI. Total = $2,000 + $5,000 = $7,000.
Common mistakes
Thinking LTCG is excluded from income (it's just taxed at a lower rate).
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