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Capital gains vs Ordinary gains

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Why do we distinguish gains as either ordinary or capital? Please supply examples with your explanations.

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Solution Summary

The differences between how capital gains and ordinary gains are earned and treated for tax purposes with examples.

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With regard to investments, ordinary income is earnings that an investment instrument earns or pays out . Interest earned on bonds, T-bills, savings accounts, money market accounts, or lending accounts are all classified as ordinary gains.
Ordinary income also includes salaries, and wages, profits from a business

Capital gains are ...

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