Interest and capital gains are taxed differently in the United States in that
A) interest is exempt from state and local taxes.
B) interest is taxed as ordinary income, but capital gains are taxed only when realized.
C) interest is taxed as ordinary income, but capital gains are taxed as accrued.
D) capital gains when realized are exempt from state and local taxes.

Question

Quizplus · Accepted Answer

Interest income is taxed as ordinary income, meaning it is subject to the same tax rates as wages and salaries, while capital gains are taxed at a lower rate and only when the asset is sold or disposed of. Additionally, some states may exempt capital gains from taxation, but it varies by state. Option A is incorrect because some states do tax interest income, and option C is incorrect because capital gains are only taxed when realized (sold or disposed of), not when accrued. Option D is also incorrect because capital gains may be subject to state and local taxes depending on the state.

Interest and Capital Gains Are Taxed Differently in the United