Series 52: 6.3.4. Ordinary Income Vs. Capital Gains

6.3.4.  Ordinary Income vs. Capital Gains

Adjusted cost basis is applied for tax purposes to determine whether profits from a sale must be classified as capital gains or ordinary income. Capital gains are the amount of profit obtained by selling a capital asset at a price above its “purchase price,” as measured by its adjusted cost basis. Ordinary income is any income that is not a capital gain.

Ordinary income includes earned income, dividends, and earned interest. With respect to municipal bonds, it al