DECA+ Business Management and Administration Practice Exam

Capital gains taxes are applied to which type of earnings?

1. Regular employment income

2. Income from rental properties

3. Earnings from the appreciation of investments

4. Income from dividends of stocks

The correct answer is: Earnings from the appreciation of investments

Capital gains taxes are specifically levied on the profits that an investor earns from the sale of an asset that has appreciated in value. This typically applies to investments such as stocks, bonds, real estate (excluding primary residences under certain conditions), and other assets. When an investor purchases an asset and later sells it at a higher price, the difference between the purchase price and the selling price is considered a capital gain, and this gain is subject to taxation. The other options describe different types of income. Regular employment income is subject to ordinary income tax rather than capital gains tax. Income from rental properties is generally taxed as rental income, which follows different tax rules. Income from dividends is treated as dividend income and is typically taxed at a different rate than capital gains. Therefore, the unique nature of capital gains taxation makes it applicable exclusively to earnings derived from the appreciation of investments.