Which of the Following Statements About Ordinary Income and Capital

question 26

Multiple Choice

Which of the following statements about ordinary income and capital gain is true?

• A) Income characterized as capital gain can have no additional tax characteristics.
• B) Individuals pay tax on their capital gains at a preferential the same rate as ordinary income.
• C) Corporations pay tax on both ordinary income at their regular rate and capital gain at their regular a preferential rate.
• D) Individuals pay tax on their capital gains at a preferential rate and corporations pay tax on both ordinary income and capital gain at their regular rate.

---

Definitions:

Passive Loss Rules

Tax provisions limiting the amount of loss investors can claim from passive activities, such as rental properties, to offset other income.

Income

Funds acquired regularly from labor or investment returns.

At-risk Amount

The maximum value taxpayers are at risk of losing in an investment, affecting the deductible loss limit in tax declarations.

Ordinary Loss

A loss derived from normal business operations or transactions that is not classified as a capital loss.